Which state yield the best % for sale of tax lien certificates?

Question

I recent look into tax lien sale and wonder which cities and states yield the best percentage for the tax lien certificates?

I live in California and my state does not do tax lien sale.

Thanks in advance?

Kevin Zimmer · Answer

@Kin Lay that is a trick question.  If you are doing tax liens you should not just look at interest rate, you also need to consider penalty.  Interest is normally annualized, where as a penalty is absolute.  For example, Iowa is a 24% interest (2% per month).  so a 10k lien after 1 month returns you 2% ($200)  On the other hand, Louisiana is 12% + 5% penalty.  So a 10k lien after 1 month returns $100 + $500 = $600.  Lot's of other examples  too

Jerry K. · Answer

@Kin Lay, Good questions, and they highlight why tax liens can be too difficult for the individual investor. The answer to all your questions is "it depends".

1) In most states you will have to pay income taxes on the interest gain. I get a 1099-INT from the stated I invest in, but some states have a premium and you have to read the state statutes to see how the premium or interest is taxed.

2) Usually you still get your taxes paid back in bankruptcy. It can get tied up for months or even years. I've read where the amount of interest has been reduced on the lien by the judge. I have also read where the lien has been wiped out in total, but that is a very rare case.

3) You have to read the statutes of the state and maybe the county to see how they treat the premium. Both for which part(s) earn interest and which parts get paid back in redemption or foreclosure.

4) Again you'll have to read the statues of the state and the county to see which fees are refundable or earn interest.

Ned Carey · Answer

Well it depends on a few factors. The zestimate the least important of them.

• The assessed value is important as the formula for biding is based on the assessed value. If you bid more than 40% of the assessed value you start to bid down your interest rate. 
• The real value of the property, That is the number one most important to me. 
• The amount of the lien. You could have three houses on the block all assessed at $70K and the liens may be from $900 to $3,500.

i would guess a property assessed at $50,000 I would bid perhaps $15K.

NOTE replying to Kin Lay regarding tax sale in Maryland specifically.

Ned Carey · Answer

@Kin Lay in addition to what @Kevin Zimmer said is that many states the interest rate gets bid down. In  MD Prince Georges county is 20% interest. However two years ago the winning bids had an effective interest rate of 4-5 %

Ned Carey · Answer

@Kin Lay Jerry covered the bankruptcy possibilities pretty well. Questions 3 & 4 will depend on exactly where you are bidding. In Baltimore MD there is a $100 registration fee. They will keep that whether you win anything or not. I believe some counties refund the registartion fee.

Kin Lay · Answer

Thank you everyone for the input.

4 more questions:

1) Do I have to pay tax on the tax lien interest gain?

2) If someone file bankruptcy while you hold the tax lien certificate, do you lose all of your money on that tax lien?

3) For premium bidding on tax lien, does that mean - let say a tax lien has a starting auction of $2000 and you won the auction for $5000, so you have to pay $5000 on that tax lien. Assuming that county has 18% tax lien interest. After a year, you should get $5000*0.18 ?

4) When you want to bid on tax lien, you put your money up to an account, and there is a possessing fee (around $35 in most county). If you don't bid on anything on that day, your money will refund back to you, but does that mean you will lose the $35?

Dennis Weber · Answer

The best returns are where redemptions are lowest. Buy a lien for $5k and sell the property for $15k. 300% return. use some owner financing tricks to even increase that.

Josh Carr · Answer

If you are looking at interest rates only then IL can be the best state available.  If you have a tax lien at 18% it is treated like a penalty and the second six months it is another 18% yielding a total of 36% per annum.

Kin Lay · Answer

@Ned Carey if a house in MD has a zestimate price of $50,000, how much do you think an individual would have to spend on tax lien in order to acquire that house?

In this example, I assume the homeowners will give up his house and looking for just an estimate.

Thanks!

Kin Lay · Answer

in California, individuals usually pay 70% of the zestimate value of the house from tax deed sale. Assuming zestimate is accurate, an individual can save 30% doing tax deed. As for going through tax lien sale, approximate how many % do you think an individual can save at Texas or Florida, assuming they would get the house through foreclosure?

Which state yield the best % for sale of tax lien certificates?

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