Do you invest in Tax Liens?

Question

Hey - I'm looking for some assistance for an upcoming BiggerPockets Blog post about Tax Lien Investing, and I'm just wondering who is actively doing this kind of investing? I might just need to email some questions, ideas, etc. Thanks!

Ned Carey · Answer

I  have never had to kick anyone out of their home. So far I have been able to work things out with owners or Heirs.

Right now I have a situation where the heirs to a house had it under contract to sell. In the mean time before the house has gone to settlement I have a judgment foreclosing on a tax lien.  Since they have it under contract to sell for $60,000 and I will be into the property for only about $10,000 I told them I would work with them and they would get some of the money if the sale goes through.

Their buyer is trying to sell one of his other properties to pay for the new one. Well it turns out that I just completed a tax foreclosure on one of this same buyer.'s other properties!  Also the property he is trying to sell in order to buy from me and the heirs has just been foreclosed on itself for taxes.  And his home was recently lost to mortgage foreclosure.  It is the ultimate irony. The buyer is trying to sell a property he lost in tax foreclosure to buy another property already lost in tax foreclosure.  Of course this story is more funny than it is a horror story.

Horror story 
The horror stories come from bidding on properties not worth what the taxes are. I just got a judgment on a property that looked great two years ago when i bought the lien. Now it is boarded up, leaking roof, vandalized and stolen copper pipes.

The lien was only $2,921. For a property that looked good on the outside I figured that was a winner.  However with legal fees and accrued taxes and fines for two years, my total cost is about $13,000 for a house that may get $6-7,000 at auction.

What can go wrong.
The biggest risk in tax lien investing is bidding too much. It is very easy to do. Often bids are done based on assessed value.  What is the assessments are too high to start with? Bidding 50 cents on the dollar sounds like a bargain but if the property need substantial repair that could be  way to high a bid. There are a lot of hidden costs in tax lien investing.

I just spoke to an agent of one of the largest bidders in MD. They have 700 properties to unload. They can't sell them because the paid too much.

know the rules
Some of the risk is not knowing the rules. In the last two year I have made as much money be negotiating with investors who overbid as I have with my own liens.

I have made a lot of money with tax sales but you better know what you are doing there is a lot more risk than most people think.

George P. · Answer

@Ned - great post.

Ned Carey · Answer

Thank you George P.

Matt Hager · Answer

Your horror stories can depend on what state you are in. As far as KY is concerned I know that a property can go into bankruptcy and a judge can order a payment plan and to remove the interest. So basically you can have money tied up for a couple years and draw zero interest.

Also some states do not allow for you to take title to the property. So you need to read your states laws. In ky when you foreclose on a property, it goes to a master commissioner's auction and the highest bidder at that auction takes possession and the lien holder is reimbursed through that sale. A potential horror story from this is that a property may not sell for the attorneys fees and investments you have in the property. Then you stuck with a pro rata interest in a property no one wants!

A lesson from this is always do your research on a property to find out what you are getting into.

Theresa K. · Answer

Raquel Baranow:  Yikes! Good luck with the lawyer.

Ned Carey:  Thanks. I've been researching some of the parcels I'm potentially interested in so that I know exactly what is being sold.  Some of these parcels sound good until you research and find out that it's really just a 5'x60' strip of land that you can't do anything with.  Of course some little strip of land in the right area could be profitable too. I know there's a good chance they'll get redeemed or withdrawn, but I'm looking more toward houses with unpaid property taxes rather than vacant lots.  County assessor says they don't sell occupied properties at tax sale so I'm not as worried about having to evict.

As far as I understand you get title to the property after the tax deed is recorded, but you can't get title insurance for a year because there is a one year redemption period for certain entities.  If I was able to acquire a house I would probably try to put a tenant in there in as-is condition just to keep it occupied and keep the squatters out until the redemption period has expired.  After that it could be rehabbed/flipped.

Raquel Baranow · Answer

@Theresa K. Here's a horror story: I got 50-lots through tax lien foreclosure (year 1997-2002), was going to develop them myself when some investors bought up all the other delinquent liens (1500 liens), and formed an HOA to develop the land . . . it worked out okay at first, I made a good profit selling some finished lots to home-builders, but due to the HOA mismanagement and the economy, I have about $1-million in HOA liens on my lots. The liens are over 6-six years old so they expired but the lienholder is suing me for $550,000. I'm going to see a lawyer about it tomorrow . . . I'm confident of getting the liens removed. here's a blog I wrote about it: http://sycamorevista.org/

Theresa K. · Answer

Ned Carey and Dan Orr:  What are some horror stories?  Do people get really mad if you purchase their house or their grandma's house that they're supposed to inherit at tax sale?  I'm going to attend the tax sale here in San Diego in March and I'd like to know what I should watch out for.

Ned Carey · Answer

Brandon Turner I have been doing tax liens in Maryland for about 9 years. I've probably bought about 500+ liens and foreclosed on about 50+ houses.  I'll be glad to help.

Tax sale is one of those things that I can make sound really good - getting houses dirt cheap. But there is the other side of the coin, I can tell you some horror stories too. It is not near as easy as the Gurus portray it.

Dani Beit-Or · Answer

@BrandonAtBP

I have invested and teach tax liens and tax deed investing.

Feel free to email/talk/call.

Dani

Raquel Baranow · Answer

Brandon Turner

I'm an expert on Tax liens in Arizona, Pima & Pinal Counties.

Do you invest in Tax Liens?

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