Purchase 2 liens from Tax Lien Vault?

Question

Hello All, I am a newbie investor and I am trying to determine if I should purchase 2 liens (18% & 15.25%) in Florida (St Luce and Sarasota counties) through Tax Lien Vault by way of a company called REI Holdings Inc. Both liens appear to be to be between 6 and 7 years old. Meaning they are about a year or 2 away from expiring and therefore requiring either the property owner to redeem OR that someone initiates foreclosure to either force payment and/or sale of the land. These liens are land only. They appear to be in nice developments that the builder for various reasons has stopped work on. So my questions are: Is buying a lien through a 3rd party and having it transferred to me (via my bidder ID in the relevant counties) considered normal/wise/ok? The seller says the lien transfer will take about 30 days due to slow moving County transfer processes. The Tax Lien Vault has been pretty straightforward with answering all my questions. I am just a little nervous on pulling the trigger on my first Tax Lien investment and am looking for some guidance from wiser more experienced investors! Thanks!

Wayne Brooks · Answer

Generally, tax certificates (they're not referred to as liens here) that sell for those high interest rates are of little to no value. Otherwise someone would have bid them down to less than 5% at the original certificate auction. But the important thing to realize is how you would collect. To collect you, or some other certificate holder, has to send them to auction. To do that you'd have to redeem/pay off All the other certificate holders on that property, maybe 4 or 5 years worth, and pay some additional fees to send it to a Tax Deed auction. Therein lies the rub....if the 5 other tax year certificates are owed $2000 each, you're putting up another $10k plus to send it to auction. If no bidders bid the minimum amount covering your certificate and all the other redeems certificates, you get the property back. Obviously if no one bids the required amount, the property isn't worth that much. This is likely the reason these Certificates are for sale, the holder realizes they are "upside down" and is looking for someone to bail them out. If you understand that Florida Tax Certificates are "sold" by way of bidders bidding "down" the interest rate they are willing to accept, starting from a high limit of 18%, and that most certificates are "sold" at a rate below 5%, you'll understand that no one wanted the certificates, for some reason, therefore you can assume that any certificates going for the 15-18% rate are basically junk, and no one bidding wanted them. This is not the pool of investments I'd want to be picking from.

Jay Hinrichs · Answer

@Wayne Brooks Sounds like turn key tax lien investing... obviously the company wanting to sell or broker the tax' liens are expecting some profit for doing so.. SAid profit being on top of what one would pay for the lien.. Or just guessing here this company scouts out those that have the high interest rate tax liens proves that they bought a worthless tax lien offers pennies on the dollar and then resells for profit.@Steve Doherty why don't you just go buy your own tax liens at the tax sale why pay a premium for them?I suspect by asking this question on BP you just saved yourself from entering into to a deal that would not be fruitfull in any way... My experience with tax cert states and I am by no way any expert but I have been to half a dozen sales and I know when I see a court house controlled by the local big players when I see one and that is what I saw in the tax cert bizz the big boys gobble them up and the private investors are picking up the crumbs.. at least that's what I saw in MS.

Steve Doherty · Answer

Thanks Jay. I posted a longer reply but did not use the quote function to notify you. Thanks again, This was very helpful. I apologize if I am unintentionally spamming you and Wayne!

Steve Doherty · Answer

Thanks Wayne. I posted a longer reply but did not use the quote function to notify you. Thanks again, This was very helpful.

Steve Doherty · Answer

Wayne and Jay, thanks for the replies. It is enormously helpful. These certificates are being marketed as "over the counter" as leftovers from the auction(s). The logic being provided for purchase them is that when the owner pays the tax then the cert(s) will be redeemed and the investor (me) will get paid. It sounds like that is a wee bit of an oversimplification. Especially if my exit strategy options are either let the certs expire and be out the investment or be forced to pony up possibly an additional 10k +/- to force the property to auction/sale and possibly be stuck in the end with worthless property. The least likely outcome appears to be an 18% ROI to me. It feels a bit like the real estate equivalent of the "pump and dump" strategies of dicey stock brokerages. Thanks again and yes, you have helped save me a nice chunk of my hard earned money!