Tax Liens Vs Tax Deeds

Comments(4)

• 
  edmeyer15th January, 2004

  I will take a stab at this and perhaps others will add some refinement.
  
  Most property taxation is done at the county level. After some period of delinquency the county is entitled to take action to recover back taxes. In some states Tax Lien Certificates (TLC) are issued. These are sold to the public and the revenue brings the county current on the delinquency. The delinquent owner has a period to pay off the Tax Lien Certificates to the TLC holder and must usually money above what is owed. Sometimes this is as much as 18% or so. TLCs can have a high yield, however, often tax lien certificates are auctioned. I recall reading that there has been some institutional money chasing TLCs and they bid over the owed amount so that the yield is reduced. If the delinquent owner does not cure the delinquency, the TLC holder will wind up with the property.
  
  Some states do not issue TLCs but instead have Tax Deed Sales. These are usually auctions where the property is sold. There may be a redemption period after the sale (perhaps in some states).
  
  The scenarios vary widely be state. I know that California has Tax Deed Sales and requires an opening bid of one half fair market value. You need to check on the laws and procedures up in Washington.
  
  Tax Lien Certificates are a vehicle for getting some income without necessarily buying property. You need to determine what is better for you based on your goals.
  
  I hope this is of some help.
  
  Regards,
  Ed

• 
  RonaldStarr16th January, 2004

  scottdahl--(WA)-----------------
  
  Tax certificates, also known as tax liens, and certificates of purchase, and other names in other states, are, as Ed Meyer says, a way for the local taxing entities to collect their taxes sooner. The investors buying them can get an interest rate or penalty return when the taxes are paid. If the taxes are never paid the investor can convert the lien into a deed to the property, usually at some added expense. The chance of getting a good valuable property from randomly purchased tax certificates is very low. Probably something less than 1%, perhaps about 1/10%.
  
  Many properties that have delinquent property taxes are not "good valuable" properties. So one needs to research before buying a lien otherwise you might find you can get a deed to a property because the owner never pays the taxes and you find that you have bought a worthless or junk piece of property. Or even one with toxic waste on it which you will have to remove at your own expense.
  
  In deed states you bid at an auction and get the property deed. Again, the property may or may not be valuable. You have to have researched it before bidding upon it. In some states there may be a redemption period.
  
  Ed Meyer mentions CA tax deeds. It is no longer the case the opening bid has to be 1/2 the property value or more. Although, there may be some counties which do start their bidding above the amount of taxes owed, the state law now specifies that the bidding can start at the amount of taxes owed, plus penalties, interest, and a portion of the cost of the sale: notification letters, legal advertising, etc. If there is no bid placed on a property, the tax collector can drop the bid on the property the second time up to whatever amount the tax collector decides.
  
  Tax liens are a high-return safe investment and easy to make, if you study up on them and take some precauctions, such as viewing the properties which secure the liens. However, in some states it is difficult to bid upon the liens. In some places the winning bidder for a lien is determined by drawing lots, for instance. So it can be difficult to place your money effectively.
  
  Tax sales are drawing a lot of interest these days. So it is often difficult to either get a good deal or even get a property at all. It is wise to telephone to the tax collectors or treasurers offices and ask what their recent sales have been like: number of items up for sale, number of buyers, number of itens actually sold, etc. Then only go to a county where the sales seem to be good.
  
  I bought one property in WA at a tax sale. It was a 1 acre flat parcel in Beaver, Clallam county, right on highway 1. I sold it for about 10 times what I paid for it. I thought it was in a good location. Only about a block from the tavern. And the firehouse was even closer, in case I were worried about a fire in the grass.
  
  Good Investing*********Ron Starr************

• 
  scottdahl16th January, 2004

  Thank you both for your responses. How would I go about bidding on a lien? Do I have to go to that state? I read somewhere that it can be done through mail. Is that true and if it is which states do that?
  
  scottdahl

• 
  RonaldStarr18th January, 2004

  scottdahl--(WA)---------
  
  Typically you should go to the auction if you are going to bid on liens.
  
  You can buy liens in some states "over the counter" after the initial auction. Some places will allow you to order them through the mail. I have done this, but only after researching the properties in the county records and after seeing the properties themselves. I ordered when I got home.
  
  I'd recommend you never buy a lien on a property that you have not personally seen or at least had looked at by somebody you can trust. Far too many tax lien properties will have a burned down building, even if the assessment roll says that there a structure there.
  
  Good Investing******Ron Starr*************