First Trust Deed Headed towards Tax Lien Auction

[Sandy Uhlmann]

I own a first trust deed that I paid very little for-under $15,000.  It is a duplex renting out at $800/month and has a zillow value of just under $50,000 in Cleveland, OH.  Recently in doing some research, I noticed that the property taxes are not being paid.  I contacted the county who told me that it would be eligible for a tax lien auction as early as this July.  When I contacted the gentleman who was the previous owner of the note and who is carrying back a second, he informed me not to worry and that if this happens, the purchaser of the tax lien is required to notify the lien holder at which time I would have the option to buy the tax lien from the purchaser for the price they paid plus whatever interest rate that county pays for their tax lien certificates. (Redeem it)

I have a couple of questions related to this.  If this happens, do they notify ALL the lien holders of the tax lien sale and do all of the lien holders have a equal opportunity to redeem?  In other words, if the second mortgage holder is also notified and he redeems before I have a chance to is the property his free and clear and do I totally lose out?

I realize that I can just pay all or part of the taxes to avoid this going to sale.  Recently, this borrower has been a spotty payer because I have since learned that the property has been sold subject to my first lien.  Since this was a very low dollar note, I am sure there was no due on sale clause but I can certainly start the foreclosure process because the borrower is behind on payments.  I am wondering if in the end it is cheaper and faster to let the note go to tax lien sale and redeem it vs going through the cost and time of the foreclosure process?

Any insight would be appreciated.

Sandy

[Mike Hartzog]

@Sandy Uhlmann You don't need to worry about who redeems the lien, as long as it is redeemed by someone.  Keep in mind that redemption of a tax lien is simply a paying of the tax debt and removal of the lien from the property.  If it is the owner who redeems, that's great because the taxes are paid and the lien is gone.  If it is a mortgage lien holder, they get to add the amount paid as an advance to the loan, and that's all.  So if the 2nd lien holder redeems, it's good for you because you have preserved your current equity position (not increased the debt via advance), removed the lien from the property, and the taxes have been paid.  

With tax liens, the scenario to be concerned about is when they get to be a couple of years old.  In the tax lien counties I have dealt with, the holder of the tax lien has the right to foreclose after some period of time, and I think 2 years is common.  If that happens your loan could be wiped out in the process.  My policy is to bring the taxes current prior to tax lien sale, and if I buy something with a tax lien I redeem it right away.  These things carry high interest and that can add up quickly as a senior encumbrance on the property if not dealt with.