How Does Investing In A Tax Lien Work? What Is The Process
I have been investing for a couple years (short sales) and I don't quite understand how you find, purchase, and profit from tax liens. Will someone please enlighten me? :-?
Tax lien investing is a modest return, lower risk form of investment.
Property tax liens are issued by municipal taxing authorities (counties) in return for the payment of delinquent property taxes. For municipalities with poor tax collection rates, the sale of liens not only generates revenue from non-performing assets, but also spares governments the politically awkward chores of eviction and foreclosure. They earn interest as specified by state statutes from 8% and on up and are secured by the underlying real property.
Some counties or state websites will have this information posted or the Tax Collector’s office may provide all of this information to you as well.
You should read the following:
United States Constitution, IV, Sec. 3(2); plus the V, IX & X Amendments
United States Supreme Court, Chief Justice Marshall, McCulloch v. MD (1819)
United States Court of Appeals 5th Circuit, 554 F.2d. 216 (1977)
United States Court of Appeals, 2nd Circuit, Mikulec v. IRS (1983)
United States District Court, Birdville v. Hurst, RTC, FSLIC, General Elect. (1992)
Internal Revenue Service Code, Reg. 301-6323 (states tax liens are superior to IRS liens)
Article III of the Uniform Commercial Code (UCC) - as adopted in all 50 states
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Thanks John, Very helpful.
You can profit in several ways
1) in tax certificate states like Florida you can buy a tax certificate by paying the taxes basically for that year. You make interest on the certificate at max 18% per year. So say you bought a tax certificate of $100 with a 16% interest you make $16 a year on that. When you want your money or after 2 years you ask the county to take the property to sale and after its sale is when you get your money.
You can buy certificates at the yearly county sale or buy the county held ones
2) Tax cert state 2 - these states you go to the sale and bid on a tax certificate which is also basically bidding on the property. Some states will have a redemption period and some dont. The trick here is to make sure you bid on property that is worth the risk.
There are other ways but that is the 2 basic
Good info. I had the same questions as Beezerlm. Can either of you recommend a good place to learn more about this? I see all the expensive seminars on-line but that's just not something I'd buy into. I think that the most reputable learning sources aren't always the most expensive. For example, many moons back when I was in college, some of the best teachers I had were at the junior college, not the expensive university I attended later. I'd appreciate any feedback on the right first stop for me. I want to do things right, and see if this is something I can really commit to.
Thanks folks.
So basically you are paying the taxes and issued a lien or almost a bond by the municipality, and it earns intrest right? I have a few questions before I read up some more on this subject. Who is paying the interest, the municipality? The delinquent tax payer?
Linlin: you said When you want your money or after 2 years you ask the county to take the property to sale and after its sale is when you get your money.
Are you basically saying that when you want the initial money you put up to buy the lien you contact the county and ask them to foreclose on the property, auction it or sell it somehow and then once the sale is complete you get your initial investment back?
Question: Who is paying the interest, the municipality? The delinquent tax payer?
Answer: The delinquent tax payer
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I understand that the delinquent tax payer is paying the interest in the end, but isn't the municipality paying the interest in the meantime so they can sell the lien to an investor and get most of their $$$?
I'm still wondering about the whole calling it die when you want your money thing. From what I understand you wait a predetermined period of time, and if the if the delinquent tax payer has still not payed then you can call the lien due and have the municipality foreclose or something to get your initial investment back?
While the process does differ a little bit from state to state, basically the TL buyer has a guarantee...he's gonna get the RE if the tax payer doesn't redeem, by paying the delinq. taxes plus all accrued cost, interest, etc. within a certain time period.
e.g., in TX, where I've bought a number, the lien buyer pays the county, then gets the TL Cert. on a specific property...then, if it's not redeemed in 2 years, he gets the full title to the property.
If it's redeemed in yr 1, he gets 125% of whatever he paid; in yr 2 he gets 150% of whatever paid.
Only guarantee he gets is if he isn't paid by the redeeming taxpayer, he's gonna get the property.
Side note: Although I bought a number in Dallas and Tarrant counties, never got the property as they were always redeemed by the now-awake owner or his family who'd not known about the delinq. tax picture on their relative's propety.
Usually it was a Sr., who just wasn't competent, and the family had not realized what was happening until they had to pay me or lose the property.
Had two or three of those very agitated family members threaten me with mayhem if I didn't give it back...but I just answered "hey, it's yours whenever I get paid what TX law says" and they sent me my money.
can investing in tax liens be full time? And if so how long might it take with say $1000 to invest.
This site has been helpful to me, especially this forum. Another place to go is www.taxsale.com. It's free and sometimes they have free live discussions with tax sale experts (to quote the site). I think there's another one coming up soon. I missed the first one though, but it's viewable. There's some good information there; I like to look everywhere I can to get the most information though.
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On 2004-10-07 14:03, echopark wrote:
Good info. I had the same questions as Beezerlm. Can either of you recommend a good place to learn more about this? I see all the expensive seminars on-line but that's just not something I'd buy into. I think that the most reputable learning sources aren't always the most expensive. For example, many moons back when I was in college, some of the best teachers I had were at the junior college, not the expensive university I attended later. I'd appreciate any feedback on the right first stop for me. I want to do things right, and see if this is something I can really commit to.
Thanks folks.
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On 2004-10-11 20:01, glitternyc wrote:
can investing in tax liens be full time? And if so how long might it take with say $1000 to invest.
$1,000 could last you 1 minute if you were to pay someones $1,000 tax bill. In other words, it will not last long. If all you have to play with is $1,000, I would not recommend that you buy tax liens. You might try to purchase the property at the tax deed sale instead. Even there, it will take some time for you to begin to acquire any real money.
If you have to do a quiet title lawsuite after the purchase, that may well cost you more than the purchase. You may wish to look at other methods to increase your bank balance that are far more profitable in a shorter amount of time.
GenSnafu..
Would love to hear a few of them..
I started with tax liens in the state of Florida - I buy the ones struck off to the county (after carefully doing my due diligence).
It pays 18% interest that way. This is a safer way to invest than say mutual funds or such. If you have a Self Directed IRA then this is a great option .