All Forum Posts by: Jay Redding

Do I sense a rant here?  :)

Casey - This is something you need to talk specifically with legal counsel in the state that the property is in that is familiar with these matters rather than seeking advice from people who may or may not know in this forum.  There is way too much at risk to make a mistake.  You need a good attorney on your team in this state. It is worth every dime you would spend to make sure that you are correct vs making a mistake by listening to someone you thought new from this forum based upon their opinion.  

@Constancia R. You could buy the property out right any time up to the actual tax sale.  There are literally people coming in and paying their back taxes even minutes before they go up to auction. The tax sale list will be posted sometime in late summer for the sale in September/October for Allen County.  Every county is a little different, so you need to check with the county that you are investing in. You would certainly like to get it tied down before it would be published to the world.  Hope that helps.

You can also check out Jeff Smith with Hawk, Haynie, Kammeyer and Smith in Fort Wayne.   He is also very experienced.  I know Tim Claxton as well and also do some work with that firm.  Either one should be able to guide you well. 

You are correct, there could be other types of liens on the property such as a mortgage, IRS lien etc.  For our county, the IRS actually provides a blanket waiver that the Auditor's office provides in the detailed information on the logistics of the tax lien sale.  There is usually at least 30 days from the end of the redemption period until the tax deed is filed for the county judge to sign off on.  During that time, I usually have one of my title companies that I use do a title search on the property to see what liens are on the property.  You can then decide what strategy to use to clear the title.  Sometimes you may need to do a quiet title to make sure the deed is clean.  Depending what liens are on the property, the title companies will ensure over the top of the liens. If there was a mortgage on the property, and the lending institution really wanted to protect their interest, they would have paid the tax lien off before the tax sale or possibly even during the redemption period.  All parties that have an interest in the property are required to be officially notified by state law.  Their must be proof provided for this.  I have  had situations where the title company has insured over the old mortgage and even provided a warranty deed to the seller.   The key thing is to do a title search after the redemption period has completed to see what liens are on the property.  Then your title company can provide you guidance on who to talk to and what needs to be done to clean the title.  You will need to have a good attorney that does quiet titles on your team.  

Pete- You have the general idea. In your situation, if the owner redeems in month 6-12, the winning bidder would receive 5% interest on the overage for the first 6 months, then 10% pro-rated to redemption date for months 6-12.  If they don't pay at all, you then would receive the Tax Deed.  However, to receive the tax deed, you must pay the current year taxes  plus pay for any weed liens, neighborhood code violations etc. that have been placed on the property during the year of redemption.  This is the little surprise that many people don't know about or forget.  I typically allow an extra 1-2 K set aside to handle this.  However, you have the general idea of how it works. 

Hi Pete-  I participate in the tax lien sale yearly.  I will explain what happens in summary form.  Please remember that the specific ligistics of how each county tax sale works is unique to each county in Indiana as well as state to state rules are different thru out the country. You must do your due diligence before hand on both the properties and the county processes.

This is the essence of how the Allen Co, Indiana tax lien sale works. The property becomes available for the tax lien sale when the property taxes have not been paid for 3 consecutive installment periods.  Property taxes are due in Indiana on May 10th and November 10th of each year.  In Indiana, property taxes are paid in arrears, meaning that the property taxes due in 2017 are the property taxes from 2016.  So essentially, the property taxes have not been paid for a 1 1/2 years on the properties that are in the tax lien sale.  

You are bidding on the debt that is placed as a lien on the property.  You have no legal rights to the property until after the redemption period has passed and you receive the tax deed. The owner of the property has 1 year in which to redeem the property by paying the back taxes, penalty fees, administration fees and interest on the overages.  If the owner redeems the property, the tax lien holder will receive his principal back (winning bid amount back) plus interest that is established by the state.  The interest rate has changed a little bit lately.  It used to be a flat 10% on the overage amount.  I believe it is now 5% if the property is redeemed in the first 6 months of the redemption period and moves up to 10% from 6 months to a the end of the redemption period.  Don't hold me to that though as I have not reviewed this lately. 

There were a lot of different strategies being played at the sale. You need to be aware of who the players are and what their strategies are.  There are typically hedge funds and private equity groups bidding on the really good properties because they want the interest they receive backed by a hard asset like real estate. They are more interested in the interest than gaining the property.  Others are bidding to hopefully gain the property at the end of the redemption period at as low a price as possible.  If the property gets redeemed, they still make some money, but the bigger spread and exit strategy is to receive the property at a significant discount to the retail market and hold on to it as a rental or fix and sell out on contract or even wholesale to other investors. Then you have what I call the mom & pop people that are interested in hopefully getting a property that is next to theirs or an adjacent lot to their property.  You also have land buyers that hope to get a lot that can be built on.  The bottom line is that their are a lot of different players bidding.  

If you are going to be successful in this arena, you must do your due diligence on the property before hand.  There were a number of people that paid way too much for the condition of the properties they purchased.  If they have not done their due diligence and only looked at the pictures on the assessor's site or google maps, they will be very disappointed as those pictures are usually 2-4 yrs old.  You need to physically drive buy the property to determine the condition. It is truly a buyer beware situation. 

The starting lien bid that is published covers the back taxes, penalties and an administration fee.  It is only a starting point and has no bearing on the purchase price of the lien.  In those situations where you saw the pricing go way up, those were very good homes in good areas and in very good condition.  The likely hood of those getting redeemed are very good.  So those investors are bidding up to receive the interest guaranteed by the state on the overage above the minimum bid.  They are receiving roughly 8-10% guaranteed on their money, not bad for this low interest environment that we are currently in.  If they happen to receive the property and gain the tax deed, they can then sell the property to get their money back.  So the key in this situation becomes bidding up the property, but not to high that you can't get your money out of the property to cover what you have invested.  Most of these players were bidding up to about 50-60% of the estimated value of the property.  If they get the property back, they could still do some fix up on the home and sell out at retail price and be able to cover their initial investment and still make a profit.  

There are many other strategies employed.  This is just a quick over view to help you understand why certain properties were bid way above the tax lien listing price.  The bottom line is that the county gets to use your money for a year while it is earning interest. The interest on the overage above the minimum bid is paid by the property owner if he redeems the property.  If not, you receive the deed to the property at the end of the year. 

Hope that helps.

Drew- Food is not important to me.  6:30-8:30 would work best for me.  Pick a night.  It will not be perfect for everyone.  Thanks for doing this.  I think it is much needed.

Thank you Don for your help.  Much appreciated. 

Thank you Max.  Much appreciated.