Why bid down to 1%
I work in Haddonfield NJ and have spoken to the tax accessor. She has told me a bit about the tax sales in our town. She told me that most of the bidding winds up bringing the interest rate down to 1%. The taxes in my town range from 4000 a year to 15000 a year for a residential property. The houses range anywhere from 150,000 (the dumps in town) to over a million for the exclusive side. All of the books that I have read tell you not to go below the rate that you could get at any bank. Why would someone bid down to 1%? Are there any advantages to this? Thanks[ Edited by dghutter on Date 02/14/2003 ]
dghutter,
Glad to meet you.
What is happening in your area is that some of the people that were in the Stock Market are switching to Real Estate Investing.
So, someone sold them a bill of goods, told them to invest in Tax Liens, probably some Tax Lien Guru. This has driven the value down to 1%. Once these investors realize that their is no real return through Tax Lien investing they will go away.
At this time the market will become viable again. The only person who made money out of this deal is the one who showed them how to invest in Tax Liens.
Welcome on board this board, hope this gives you a better understanding of what happended to the Tax Lien market in your area.
John $Cash$ Locke
Thanks for the reply. It didn't make sense to me. Being new to this, I think I will stay away from investing in Haddonfield but I will surely attend an auction there to get a hang of things. Should be useful knowing most parties involved. Thanks Again.
I would think that they are bidding down to 1% to hope to get a deed to the property in 2 years.
What you may want to ask your tax collector holding the sale: If a property is behind in paying taxes 2 years & you I or someone else wins the Tax lien How long do you have to wait to apply for a Tax Deed? Can the property owners redeem? Is it still 2 years or less?
Ask & post it here & I will ask in my area to see if we get the same answers.
dghutter
Do you know Dave Scottie or Gene LeBlanc?
They both have homes in Haddonfield & also have homes in Ocean City.
The little guy usually has a tough time here because of all the institutions that are bidding against you. Alot of times they even bid premiums of thousands. You bid down the rate because you can pay on the subsequent (current) taxes and receive the full 18%.
The real 'guru' on NJ tax liens is Ben (NJ) he is an attorney and his firm Phoenix Funding specializes in tax liens. You can see his posts on all the main boards and him and $Cash$ are pals.
Hope this helps.
jserris,
When you purchase the taxes and bid down to say the 1%. The following year you get to buy the taxes, without going to auction, at the full 18%??? I do not know this market but I'm curious.
I am also in NJ, Monmouth County.
Repoman [ Edited by RepoMan on Date 02/16/2003 ]
Repoman,
Nice to meet you. If you win the bid say in '03 at 1% the following year ('04) it starts all over again with the tax sale and everyone bidding again.
I wonder if the tax assessor may have a beneficial interest in these liens(like a friend or family member bidding for her and splitting the proceeds)and just trying to steer the competition off...nah!..what am I saying..they would never do that
right?
I am not Ben(NJ) but let me take a crack at this anyway.
NJ tax liens carry an 18% premium and have a two year redemption period. This means that when the taxpayer redeems the lien, the taxing authority will get their delinquent taxes paid in full plus an 18% overdue penalty. Unfortunately, the taxing authority may have to wait up to two years for the taxpayer to redeem the lien.
Since the taxing jurisdiction needs the money now, they "assign" the tax liens to investors who bid for the least amount of interest they are willing to accept from the redemption proceeds. The taxing authority gets the interest spread between the 18% and the investor's bid rate (maybe as low as 1%). The investor gets his money back plus his bid premium when the lien is redeemed.
The investor is willing to take a chance on a very low return when the possibility exists that the taxpayer will not redeem the tax lien on a property with a lot of equity. Suppose a free and clear property worth $650K has a tax lien of $45K. If the taxpayer does not redeem the $45K lien plus the 18% penalty, the investor who purchased the lien for $45K can file a quiet title action to foreclose on his lien. If successful, the investor purchased a $650K property for only $45K. If the investor does not get the property, he gets his $45K back with some interest (maybe as low as 1%).
DaveT,
Thanks for your reply. Lets say I purchased the 45k tax lien but the owner did not redeem for 23 months? I know I get 1% for the 1st 12 months. Is it also 1% for the next 11months or 18% for the next 11 months?
Confused
Repoman
NJ Tax Sale Certificates purchased in 1991 and after are entitled to a penalty fee upon redemption as follows:
$200-$5,000 2%
$5,000-$10,000 4%
$10,000.01 and over 6%
The amount property owner needs to redeem a tax sale certificate:
Redemption within 10 days of the tax sale date: Amount of certificate & interest at rate issued.
Redemption after 10 days of the tax sale:
Amount of certificate
interest at rate issued
penalty fee
susequent taxes paid by lien holder if any
This Tax Sale I went to in NJ
Paper says:
If you should be a successful bidder at our tax sale you will:
1. Be the lien holder of the tax sale lien, or claim against the owner of record.
2.Be entitled to interest not to exceed 18% per annum, over and above the tax sale amount paid at the tax sale.
3. Be able to initiate forclosure proceedings to acquire subject property, if the owner of record fails to redeem the tax sale lien within 2 years from the date of tax sale.
4. Have the option to pay subsequent years taxes to be represented to protect your interest in the tax sale lien of which you qualified as the successful bidder.
5. The penalty that I posted in the message before this post.
Note: It does not say that you will get the next years taxes at 18% if you paid the next years taxes. If you don't pay the next years taxes and let them go to tax sale you would yell out prior which means you hold the tax lien from last year & 99 out of 100 times you will get the new lien at 18%.
The reason nobody wants to bid on prior liens is because will will foreclose be them and they will get nothing. That is what one tax office said to me.
Guys
From my conversation with the tax clerk in Haddonfield I found out these interesting tidbits.
The actual tax lien doesn’t just consist of municipal taxes. It may consist of the following:
Water
Sewer
CCMUA(Camden County Municipal Utilities Authority) or whatever it is in your county and
Municipal Taxes
On the actual lien all of these may be listed along with fees. The bidding starts at 18% and then works down to the lowest bidder. Once 0% is reached then bidding in cash goes up and the highest bidder gets the lien. I think we all knew this much. No matter what is bid you get your money back. The borough or municipality collects interest on your money while you wait for foreclosure. This would be the only time you should bid money, its when you think a property will foreclose.
In New Jersey there is something that was passed by the state in the form of tax relief. On the tax portion of the lien, not the water/sewer or CCMUA, you only get paid 8% up to the first $1500.00, after that its up to what you bid. On water and sewer and CCMUA if you go to the tax office and make subsequent payments on these, then you only get 8% on these payments. One thing I found out that I like is that after you own the lien, you can go to the tax office every quarter and pay the taxes for the previously missed quarter. They don’t go up for sale again unless you don’t pay them.
The township does their tax sale in December, The published list for the last sale had about 147 properties on it. By the time of the sale only 25 remained for bidding.
I looked at some of the liens and they were priced from $400.00 to about $3700.00 Of course the $400.00 was for water and sewer but its on the tax lien and still allows you to collect the property if not paid off in 2 years.
Haddonfield requires you to fill out a simple form, that includes name address tax# or SS# and where you want and how you want your payment sent. I was told that the last sale was friendly. Everybody that wanted a property got one for 18%. Only one property was bid down to 0% and then cash was bid up. The tax clerk couldn’t make sense of that because the lien was on a store in town and not a residential property. The person who ran the store didn’t own the property. So basically the borough is collecting interest on someone elses money and that person will collect nothing except his money back.
The fees I mention above cover the cost of advertising and publication of the sale. They are 2% of the sale or a minimum of 15.00. This fee you get back also along with interest.
Dates of Sales
Haddonfield- December
Haddon Heights- June this year, but normally in Oct or Nov
Gloucester City- June
Haddon Twsp and Barrington- October
Good Luck and I hope this info contains something previously not known
Don