Tax Liens, Mobile Homes and Bad Decision Making, oh my.

Our first mailings as a RE business went out last week. They were in two batches - the majority were to investors in the area. A small minority (about 40) went to a list of bankruptcy/tax lien people. We got our first call from a tax lien potential distressed seller. This became a learning lesson on the tax lien auction process with a caveat of making sure you do your due diligence.  Knowing what I found out early on, I knew this deal was not going to happen or make me any money, but I wanted to know more and the story I found was insightful and just added to my knowledgebase - so maybe you can get something out of it also.

The potential seller called and said she needed some help with a tax lien.  She owned land and a mobile home and had a tax lien of $800 and that someone bought the tax lien at auction and now is forcing her to pay rent on the mobile home for $350/month.  She also has to pay the mortgage on the land at $300/month.  She told me her mortgage had a balance of $68K and the property and mobile home were worth about $100K (later found it was not even close to this - more like $45K in total).   My job is to come up with a solution to help her.  I was interested to see if she was wanting to sell the property as a distressed seller.  I told her I would see what I could find out as it sounded like this investor may be acting illegally by asking for more than he was allowed on a tax lien (rent as opposed to the interest payment).  

And find out I did...

I asked her for the property information and then went searching for the liens - the odd thing was that I couldn't find the local property tax lien on the property "just" two federal tax liens.  We learned the county property/deed/tax lien search tool backwards and front on this one as well as the Tax Lien Auction process. 

In SC, as I've found is the case for many other states, when a government wants their tax money, they put a lien on the property and hope someone will pay the bill and then after a certain period of time, the tax lien is then auctioned up to the highest bidder.  In this case, an $800 bid won and was posted by a local investor.  From my research, the highest bidder is typically the lien holder of the property (mortgage company). By law, he is entitled to up to 12% interest during the next year that he holds this tax lien accrued at 3% per quarter.  This one year timeframe is the redemption period.  It is during this time that the property owner (either the owner or perhaps the mortgage company) has a year to pay the tax bill plus the outstanding interest - payable to the delinquent tax collectors office (not to the investor).  If it is paid within the year, the tax lien is released and the investor gets some interest on his money (plus his initial investment) from the tax collector.  If it is not paid within the year, then the tax lien gets priority status above the first mortgage and the deed of the property is signed over to the investor.  On top of this, in SC, if a mobile home is involved, the investor is entitled to charge rent.  This rent is comprised of 1/12th of the property taxes paid (it is not a rent figure the investor comes up with) from the previous year.

This rent on the property taxes of the mobile home made me think she was getting fleeced since she was now paying $350 monthly rent to this investor but her yearly tax bill was $800 (about $67 per month(1/12)).  I'm not sure what comprised the original $800 tax lien (fines and fees maybe) as I couldn't find it.

Since I couldn't find the lien, I called the client up and asked her to provide some documentation. She was going to send a copy of the lease, the tax lien and any other pertinent docs.  She did and it was the Bill of Sale, not a Tax Lien.  

It was legit - it was a Bill of Sale from our county documenting the transfer of ownership from the client (actually the mortgage company) to the investor.  It stated that due to the failure of the owner and lien holder defaulting on taxes due and failure to redeem during the redemption period the mobile home was now the property of the investor.  Apparently the owner and lien holder should have both received notifications of the tax lien and either could have cleared up the lien by paying the $800 + interest.  Neither did.  It would have been in the mortgage company's interest to pay it as they had an interest in the mobile home in a combo mortgage covering the land and mobile home with a $68K balance due.  The bill of sale terminated ALL LIENS on the mobile home (but apparently not the land which I think is legally clouded since the mortgage mentions the land and the mobile home of which there is a 1st and 2nd mortgage (yikes!)).  The investor gets the mobile home valued from $18K to $35K for $800 and one years time committment.  Not a bad return on investment.

In the end, there isn't much I can do for this client.  She has a 1 acre piece of land that is not worth the $68K balance due on the mortgage.  She is paying rent to live in the no-longer-hers mobile home.  The only thing I can think of is to short sale the property as it may be worth the $17K tax appraisal value (or have the client renegotiate the mortgage).  We'd have to get it for $10K or less.  Bottom line is she is paying $650 a month to live here (which is double what she was paying six months ago on just the mortgage) but if she left it all, she'd be paying $800/month or more anywhere else.  She might just be better off here (until the investor landlord boots her out).  She's stuck in a crappy situation because of crappy decision making over the years.

After a bit more research, the client was in pre-foreclosure for a year leading up to the tax default and also got sued by the mortgage company.  I don't know all the details in this but I believe that the mortgage company chose not to proceed further due to this lawsuit being settled.  Further, I found from the tax assessor office that the property had a mobile home moved onto it and a title to the mobile home was tax decaled to the county but never joined officially to the property (a task the owner should have undertaken or perhaps the the mortgage company or title company before giving the mortgage (would this have been a standard doc at closing?).  It seems to me that the title company did some messy title work and maybe they are liable for any damages or maybe the mortgage company got what they deserved for being sloppy with a subprime loan.  Further research shows this client has a LONG history of foreclosure action over the past 20 years and an active criminal background in check fraud.  Isn't the internet great in researching this stuff?  Moving on to the next property!