Tax Liens - What to do when lien is higher than property value?

Question

Every tax lien auction seems to have its graveyard of high lien properties that nobody in their right mind would bid on.  (The $25k house with a $30k delinquent tax bill.)  What do cities do to dispose of these properties?

We have a number of these in Baltimore City.  Many of them are rotting away and the values are swiftly diminishing, while the tax bills are increasing at 18% per year.  They risk becoming a permanent blight in the neighborhood.  Is there a way to offer the city a reduced payoff for them?  (I realize the answer will vary depending on the municipality...but I am interested to hear how different cities are solving the problem.)

[Tagging @Ned Carey, the resident tax lien expert for Baltimore City.]

Ned Carey · Answer

@Matt Schelberg as Charles says yes you can negotiate with the city on back taxes on these properties. I have heard  it has to go through the city council and they will not negotiate below the assessed value. If that is true it severely limits the pool pf prospective properties to try this on.

The city will take properties themselves via, tax foreclosure or the receivership option. The city has had various programs to dispose of these proprieties over time, SCOPE, Project 5000, Receivership and Vacants to Value. The City has been good at acquiring properties but miserable at moving them to investors. They have no clue when it comes to cost and the profit necessary to take on these properties.

Account Closed · Answer

Matt, I like how you describe some of the tax sales as "graveyards". Yep these properties are always offered and some unknowledgeable investor will think they are getting  great deal.

A few years ago, my son found one of these tax sales properties that was controlled for years by one investor, he forced the cancelation of the tax certificate and offered the city $30,000 for this commercial property, after a few attempts, the city accepted the offer.

The property now is worth over $300,000, it has  two large apartments and a store on the first level.

Talk to the right people in the city, present your proposal and they may accept it.

Good luck.

Matt Schelberg · Answer

Thanks Ned. It's depressingly sad that the city believes its own lousy assessments...it's one thing to inflate them to increase tax revenue...but it is entirely different for the local government to actually use the assessments to make financial decisions.

For anyone following, the specific example I am asking about is a rowhouse in West Baltimore.

Assessment:  25k

Market Value: 10k

Back taxes: 21k

Back in 2012 this property had a 10k tax lien and even then, nobody bid on it.  Now the taxes have doubled...the kitchen floor has collapsed, and it is littered with needles from vagrant junkies.  And Ned is saying that the City still considers it to be worth 25k and will not accept less.

Unreal!

Jay Hinrichs · Answer

I know some cities or counties or states will take them in as surplus properties then auction them off for fair market value.. I believe this happens in INdy... and big mid west rust belt cities with large swaths of  dilapidated housing stock would be wise to nip this in the bud and try to get these assets repositioned..

One issue is the bad folks out there that will buy these terrible properties and them sell them to un suspecting forigners who then get blamed for not maintaining their props.. when in fact they got swindled... :) but when your talking about 20 to 30k houses being over priced and no value then your talking about the worse of the worse in housing stock.. and I am sure these are ghetto type locations. or war zones.

Account Closed · Answer

@Matt Schelberg  In Texas, what happens is first the property is "Struck Off".  That means the taxing entities took it and kept it for back taxes.  If it was a mortgage foreclosure it would be the same as them being the highest bidder.

Struck Off properties can almost always be bought from the entity at anytime for the auction amount.

Once the redemption period is over the property will be sold as a "re sale" property.  That normally means the opening bid will be drastically reduced and it will be auctioned again.  This is normally done using a written bid procedure.

Michaela G. · Answer

It varies so much.

In Fulton county, Atlanta, Georgia - taxes and municipality liens are being forgiven after 7 years. So, anything older than 7 years falls off. 7 years of taxes would normally not come up to more than the value.

In Oakland, Alameda county, CA - several years ago I tried to buy a vacant lot. I had tracked down the owner and was buying it for 80K. But the city's code enforcement office had some years ago started putting on $ 500/day for overgrowth. That had swelled to 265K.

I had met with several people at the City and they all were sure we could make it work. But then code enforcement would not budge. They didn't care that we were trying to clean up the neighborhood (which they had attempted by putting these fines on it), they just wanted their money and didn't care that nobody would buy it.

Josh Carr · Answer

I wanted to comment on Texas being a redeemable tax deed state meaning that there is a redemption period but once that is over a foreclosure is possible.  With the struck off properties being a two time non bid on redeemable deed the table is open to a price offered.   There are several law firms that you will make your offer to and once the law firm has looked at your offer, (sealed bid) if accepted you may own the deed.  There are many listings out there as re-sale offers and struck off properties if you know where to look for them.  There are 4 main law firms in Texas.  Another good avenue is the MUD properties in Texas.

Clayton Mobley · Answer

Hey @Nicholas Armstrong,

Sorry, if I took someone else's question, but I though I would chime in. In Alabama, property taxes are due on October 1st but not considered delinquent until December 31st. Notices are mailed on January 1st, and usually the county auction is held somewhere between April and May. These properties will be sold at the county courthouse where the property is located. In Jefferson County, it is the Birmingham Courthouse, and Shelby County, it is the courthouse in Columbiana. In St. Clair County, I believe it's held at the courthouse on 1815 Cogswell Ave in Pell City. If you visited that courthouse and went to the property tax assessor's or collector's office, they could describe in detail exactly how you can go about bidding on tax certificates.

As for tax deeds, these can be a little more tricky. In reality, anyone who has purchased a tax certificate is eligible for one after a three years wait period; however, this does not mean they have clear title to the property. In theory, anyone could list a property in which they have a tax deed on the local MLS or through investor channels.

I hope this was some help.

Michael Watts · Answer

In Alabama after 5 years the state will accept the best offer. It might be getting with and talking to the right person where you live. I'm new to buying tax deed and I have pick up 7 houses in tax deeds buys and rented them out. I was thinking like you because if no one buys the property they just go to waste and after so long, the city will come in and tear them down.

Tax Liens - What to do when lien is higher than property value?

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