Tax Liens Noob Questions (Neptune NJ)

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Tax Liens Noob Questions (Neptune NJ)

Steven Steiner
Investor · Glenside, PA · Member since 2014 · 12 posts · 2 votes

Hi everyone. This might be a TLDR - but if you have the inclination...

So I have been researching Tax Lien Auctions pretty heavily recently and I had some questions which might be simple questions, but I haven't found on any websites or books yet, so I figured it was worth a shot to throw them out to the smarties at Bigger Pockets and see who could hit a single:

1. To be specific, I have been checking out Neptune NJ. I notice in the results from 2015 - ALL of the high bids except one, from what I can see, were big boys like Investment Firms, etc. I guess some of them, after research might turn out to be the mortgage holder protecting their investment - but in general, are people doing Tax Lien Auctions noticing that big banks, etc. are winning all the auctions? How does this go - do they just keep bidding things up until the "little guys" tire out?

2. I see where a thriving hotel had an unpaid tax bill. That hotel is still in business right now and getting 5 star ratings on Trip Advisor. I see why someone would want this debt - so that they can get paid the penalty - etc. Why would a thriving hotel be in a situation where they wouldn't pay their own tax bill? Are they maybe struggling behind the scenes? Can there really be an oversight this huge?

3. LASTLY... :-) So if there is a listing that has a house attached, and the house looks great, and you can see they have had the same owners since 1996 - why would this be popping up. Like maybe older people just missed their bill in the mail? Fell on hard times? I mean if I see like, for instance, land is worth $100,000 and house is worth $100,000 and there's a $2000 unpaid tax bill....what could be up here? Land is not in flood zone....I mean I just don't get what some of the downsides to some of these could be. I know I am missing something....

Thanks a lot for any help!

Steve

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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
10y

Steve, 

Larger counties bring in deep pockets and they buy up the higher dollar properties and all other that I have talked with only want the Interest.

Either go to smaller counties or do what I do and look at properties that have a FMV of under 75k. There are many great looking properties in my area that have made perfect rental properties in this price range. Also I avoid under 20k as this is usually junk.

This gets my list down to around 1000. Then I spend months driving by these house and I rank them from 1 to 10 so I can quickly look at my notes and ranking during the auction.

As to why someone wouldn't pay their taxes. There are so many reasons. Hard times, deceased, in a nursing home, this is not their primary residence and they are focusing on their primary house. Some people pay late every year and you see patterns of the same houses that are on the list. You can look up when each year they have been paying to see if this is normal or a new occurance. Some properties will have multiple years unpaid. These are more likely to not get redeemed.

I have been doing this for over 10 years and I still learn new things to look for.

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  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    10y

    Steve, 

    Larger counties bring in deep pockets and they buy up the higher dollar properties and all other that I have talked with only want the Interest.

    Either go to smaller counties or do what I do and look at properties that have a FMV of under 75k. There are many great looking properties in my area that have made perfect rental properties in this price range. Also I avoid under 20k as this is usually junk.

    This gets my list down to around 1000. Then I spend months driving by these house and I rank them from 1 to 10 so I can quickly look at my notes and ranking during the auction.

    As to why someone wouldn't pay their taxes. There are so many reasons. Hard times, deceased, in a nursing home, this is not their primary residence and they are focusing on their primary house. Some people pay late every year and you see patterns of the same houses that are on the list. You can look up when each year they have been paying to see if this is normal or a new occurance. Some properties will have multiple years unpaid. These are more likely to not get redeemed.

    I have been doing this for over 10 years and I still learn new things to look for.

    1Reply
  • Rick H.
    Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
    10y

    @Steven Steiner My take on your questions is that you are trying to get plausible reasons for anomalous situations. 

    These tax defaults might be strategic attempts by properties owners to clear title of certain lien holders or claimants, but that's only a guess.

    Maybe we can get my friend @Gursel Demir to chime in as he works the weird tax stuff in NJ

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  • Steven Steiner
    OP
    Investor · Glenside, PA · Member since 2014 · 12 posts · 2 votes
    10y

    @John Underwood @Rick H. thanks for replying!

    Rick: YES! I think I understand much or what I am learning/reading, but I still keep wondering what is the "catch" or the "gotchas" that I might be missing. I understand the house in a listing could have a leaky oil tank, etc. - but is there something else. I.E. I see a lot of listing with houses in good shape and they just missed their last tax payment. I know they might pay it before the actual auction comes up - but if they don't, I just can't understand why if like, let's say, there are 4 houses on the same block that haven't paid. OR - I noticed there is like a section where like 5 people didn't pay their water and sewer bill. As if the people on this block were on strike or something :-) I googled flooding, etc. in the area and I am not finding anything unusual.

    So yes, I was just looking for like anecdotal-stories as to what the things I could be missing is. In summary, I know there is like a statistic going around that like 99% of Liens are paid - in other words, rarely does the 2 year period expire and you get to foreclose - which is fine with me. But is this true? Only 1% don't get paid - and if that is the case - isn't Tax Lien investment like a no-brainer - you get your penalty money if they pay and if they don't pay for a while you get to tack on more interest...what the heck is the catch here? What is the horror story. If I pay $1000 - what is the situation where I LOSE all of that $1000 because the person doesn't pay AND I don't want the land with the single home on it? (Again - forget commercial places that could have a Uranium spill :-) )

    Thanks guys! 

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  • Sarah Ziehr
    Real Estate Broker · Chicago, IL · Member since 2015 · 531 posts · 266 votes
    10y

    The catch is, you have to have a lot of cash- and time- to see that 12% return. 

    If you do scoop up a property then dealing with a possible eviction and sometimes angry neighbors who don't like the fact that you acquired the property the way you did. That is the worst of it that I have seen. 

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  • Steven Steiner
    OP
    Investor · Glenside, PA · Member since 2014 · 12 posts · 2 votes
    10y

    Yep - I get that your money can be tied up for a while for sure. As far as the "lot of cash" goes, I have seen many sales for under 2k. Not that that is anything to sneeze at, but is that a lot? Or is it that the smaller sales don't normally amount to much profit because maybe you only get a 4% penalty of $2000? Still, I don't know, seems like it is worth it for the "lottery ticket" situation where maybe once in a blue moon you get the property. As far as the neighbors being mad - if the current owner still wanted to live there I am sure they would work something out and if they don't, then you would think that you could maybe have someone handle the eviction in your stead and then just sell it? I don't know. I would definitely hate to put anyone out on the street - I don't think I could do that...

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  • Ian Cox
    Real Estate Investor · Seattle, WA · Member since 2015 · 14 posts · 5 votes
    10y

    "I know there is like a statistic going around that like 99% of Liens are paid - in other words, rarely does the 2 year period expire and you get to foreclose"

    In my experience many liens(50+%) will not redeem prior to the 2 year redemption period(foreclosure date) which then leaves you with situation that either you wait until another fellow lien holder on that same property initiates a foreclosure at a later time or you pony up additional money to initiate a foreclosure which can easily triple your net investment exposure.  Many months later when the tax deed sale takes place, very often I have seen 10-20% of the tax deed properties were redeemed just 2 days before the sale. Then on the very last day this redemption rate rockets up to about 50%. Thus you will likely have to wait until the last possible day to get paid off. This redemption rate is usually much higher for nicer homes in better neighborhoods. The commonly quoted redemption percentage your referring to is I believe 95% but that could be skewed to the last day of the foreclosure.

    If you can focus on higher value properties then your foreclosure likelihood will drop and your foreclosure costs as a percentage of the total will be lower.

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  • Steven Steiner
    OP
    Investor · Glenside, PA · Member since 2014 · 12 posts · 2 votes
    10y

    Ah - there's something I wasn't clear on: So the Property goes to then the Tax Deed sale if foreclosure isn't acted on within 2 years (NJ) by someone with the 1st Lien in line (latest Lien)? Is that right?

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  • Ian Cox
    Real Estate Investor · Seattle, WA · Member since 2015 · 14 posts · 5 votes
    10y

    I don't know the rules for NJ. I am talking about FL. Check to see if NJ has a tax deed auction.

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