Tax Lien Investing

Creating Wealth Without Risk

This eBook guide will show you the main secret that Wall Street Banks have been using for over 200 years to assure that they stay healthy and wealthy. If anyone knows how to do good business, it's Wall Street. Even when the went bankrupt, they have risen again as powerful business forces, and this guide can teach you the same strategies that they use to stay wealthy year after year. If you buy tax lien certificates (which get a detailed explanation in the book!), you will be able to both help your community get out of debt AND make a fortune. You will be able to legally take a share for yourself of the government bailout money and build your own fortune, using strategies that have been perfected by Wall Street investment bankers and analysts. You will be able to make more money that you ever have thought possible, using the tips in this ebook! Read more...

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Pay or Lose Tax Liens and Sales

You can read all about liens, including tax liens, in Chapter 8. But here I'll go over a couple of things you specifically must know about tax liens. Banks that lend money for mortgages are particularly concerned about tax liens, because a tax lien takes first priority, which means it must be paid before any other liens, including the mortgage. The mortgage lender therefore is concerned that if a property must be sold for unpaid taxes, not enough money will be left from the sale to pay the balance owed on the mortgage loan. You can read more about mortgages in Chapter 15.

Whats Tax Lien Investing

Tax liens are investments made possible by state law. Governments love to use tax money, but they really don't like being in the tax collection business. And they especially don't like to be bankers. Governments want their money now, so they can balance their budgets. So they have a serious challenge when a taxpayer, for whatever reason, decides not to pay his property taxes on a particular parcel of real estate. In fact, sometimes it takes years to collect the taxes from the owner of the property, and sometimes the owner never pays the taxes owed. As much as governments hate being the bank, they hate being property owners even more. What they really want is the cash, and they want it now. So instead of becoming a creditor of the property owner and waiting for the money until the taxpayer ponies up, many local governments (usually counties) have figured out how to get their money immediately. It's called a tax lien. In the simplest terms, here's what happens 5. If the lien is sold at...

Step No 1 Your Tax Lien StRateGy

So there are two possible outcomes of investing in a tax lien. First, and most likely, is the outcome that you will earn interest at a stated rate that can be as high as 18 percent. The other possible outcome is that the lien is never paid off (redeemed) and you get the property. These two outcomes are the basis for the two different tax lien investing strategies. While it may seem to be the luck of the draw whether a tax lien is redeemed or not, in fact there are several factors that can give a strong indication of which outcome is likely to occur. Because of this, anyone investing in tax liens should first decide how tax lien investing fits into his investment strategy. Do you want the interest, or is your goal the underlying property You really must decide what you hope to get out of your tax lien investment up front because this decision will affect everything else you do pertaining to tax lien investing. Why Primarily because the type of property for which you are willing to buy...

Step No 2 Your Tax Lien Investment Criteria

Once you have your strategy in place, you can begin creating your criteria for the tax liens you want to acquire. Let's look at the interest rate investment and property acquisition investment strategies separately. When you think about investing criteria, think about what's essential for a specific investment to meet your standards. What rate of return do you want What level of risk are you willing to assume In the case of tax liens, how much are you willing to risk that you will end up with the property How long are you willing to hold the lien until it is eventually redeemed As with any investing strategy, the clearer your criteria, the easier the investment process. With clear criteria, you can easily eliminate most of the available tax liens and concentrate solely on those that meet your specific needs. A little later on in this chapter, we will look at how to determine whether a particular tax lien meets your criteria. To be a focused real estate investor, you must be able to...

Step No 3 Evaluating the Tax Lien Investment

With your criteria in place, you can now begin looking at tax liens and evaluating whether they fit within your criteria. Between two weeks and one month before the tax lien auction, the county will release the information on the properties with tax liens that will be available for purchase. Begin your evaluation by determining which of the available tax liens will fit within your investment strategy. If you are an interest rate investor, you'll want to understand exactly how the interest rate is applied in the state where you are investing. Once you determine this, find liens that are less likely to have multiple bidders or that are located in a state where the interest rate remains fixed at the auction. In a state where the interest rate is bid down at auction, look for properties that are likely to have the tax lien redeemed, but they have some attributes that might scare away other investors. These liens will retain the highest interest rate because they will have the least amount...

Step No 6 SETTing Up Tax LiEn InvEsTMEnT Systems

Like any good investment strategy, tax lien investing should be set up as a business. This includes setting up your team in Step No. 5 and determining a good strategy. It also includes setting up the systems to make your investing efficient and effective. In order to maximize your investing while minimizing your time and your risk, consider setting up the following systems This will include reports monitoring the progress of the tax lien investing as well as reports indicating the returns on your investments. There are some good software packages available to track and monitor your tax lien investments, including rate of return and deadlines. This includes policies and procedures for your auction bidder to follow when attending tax lien auctions. Now you know about tax lien investing, which is a lucrative way to participate in real estate. And you have the strategies, steps, and checklists you need to begin exploring it if you so choose. As I mentioned in the beginning of this...

Tax Lienstax Deeds

Throughout the United States, nearly every state and county levies taxes against properties. If an owner fails to pay his or her tax assessment, the county authorities (sooner or later) begin to enforce their claim. Generally, this enforcement involves a tax lien, a tax deed, or some combination of both. Each jurisdiction proceeds according to local and state law. In my county in Florida, the assessor's office sells tax liens to investors in a reverse bid auction. The bid winner pays the tax of the defaulting property owner. That investor then earns interest on his tax lien of 18 percent a year or less. In recent years much less. The county starts the bid at 18 percent. Then investors bid down the rate. The lowest rate bidder wins. In an auction that I recently attended most tax liens were sold at an interest rate of less than eight percent. If the property owner does not repay the investor including interest accrued within four years, the investor can petition the court to order a...

Who gets paid first Priority of liens

The first person paid from a court-ordered sale of a piece of real estate is the government. Real estate taxes take first position in the payment of liens. If several liens are attached to the property and one is for unpaid real estate taxes, the real estate taxes are paid first, including any special assessments, or special taxes above and beyond the general real estate tax. Payment of general and special assessment taxes takes priority over all other liens, regardless of when the liens were attached. (For more on tax liens, see One size doesn't fit all Types of liens, later in the chapter, and Chapter 16.) Sometimes, because of too many liens, a property may not be able to be transferred or sold, primarily because not enough money can be gained from the proceeds to pay off the debt. Once in a while, some of the lien holders will take less money just so the property can sell. Quite often it is the second mortgage holder in a foreclosure sale. Other than real estate tax liens, all...

One size doesnt fit all Types of liens

A tax lien is placed on real estate for unpaid real estate taxes. Remember the government organization or agency placing the lien is paid first, if the property is sold. Different levels of government from cities, towns, and counties can place tax liens on property. School districts and water and sewer agencies also can place tax liens on property. Tax liens are involuntary and specific. I Mortgage lien. A mortgage lien is a voluntary, specific lien. In fact, it's the most common type of voluntary real estate lien. When you borrow money to buy or refinance a piece of real estate, you give the lender a lien against the property. Some states call this a deed of trust lien. Mortgage lenders are careful about wanting to be paid the money they loaned you. They usually make sure that no other liens take priority over their lien and that they have what is called a first mortgage lien. Any other liens are called junior liens. If the mortgage lien is in first position, the only...

Check the Public Records to Verify That All Recorded Liens Are Uncovered

County recorder or prothonotary's office Check the grantor and grantee or mortgagor and mortgagee indexes, federal tax lien index, public assistance liens, conditional sales contracts such as contracts for deed, agreements for deed and land sales contracts, notices of lis pendens index, writs of attachment, judgment liens such as mechanic's and materialmen's liens, and property tax liens. 2. Clerk of the county and circuit court Check the defendant's judgment index, state income tax liens, state inheritance tax liens, state franchise tax liens, judgment liens, homeowners' association liens, suits to quiet title, suits for specific performance, estates of deceased persons, guardianships of minors and incompetents, termination of life estates, termination of joint tenancies, and condemnation of lands. 3. United States Court Check for federal judgments such as federal tax liens and judgment liens resulting from defaults on government-guaranteed FHA, Department of Veterans Affairs (DVA),...

Sixteen Liens to Check for When Researching Titles to Real Property

Real property tax lien Real property tax liens are placed against properties by local taxing authorities city and county tax collectors when property owners fail to pay their property taxes. 2. Federal tax lien Federal tax liens are statutory liens that the IRS places against the titles of real property belonging to taxpayers who fail to pay their federal income tax. 7. State inheritance tax lien Most states have an inheritance tax, which is levied against the estates of deceased persons. The amount of inheritance tax owed becomes a lien against the estate. 8. Corporate franchise tax lien States having a corporate franchise tax will tax corporations for the right to do business within the state. When corporations fail to pay their franchise tax, the state files a lien against any real property within the state belonging to the corporation.

Step No 4 Due Dili Gence

Once you have decided which properties fit within your strategy and your criteria, it's time to do the due diligence on the properties. Due diligence is the process of assessing the risks of both the tax lien and the underlying property. At this point, you should have already assessed the risk of the lien being redeemed. But there are other risks to the lien that you will need to consider. And let's not forget about the underlying property. You need to assess the risks of that as well. Lien Risks Tax lien risks can be separated into two categories property owner risks and tax lien process risks. Let's go over each one. The biggest risk with respect to the property owner is a property owner's bankruptcy. If the property owner files bankruptcy, you will not be able to foreclose on the lien until after the bankruptcy is resolved. Of course, bankruptcy courts normally respect property tax liens and give them a high priority when the bankruptcy is resolved. However, in a Chapter 7...

High Yield Low Risk No Sweat

If the paper business appeals to you, consider tax lien certificates as well as mortgage notes. Tax lien certificates are one of the most predictable, certain, and secure real estate-related investments available. You buy them from the government, you get paid by the government, and the local tax collector does all the work. You won't hear about tax lien certificates from financial advisors or brokers because they don't earn commissions on this incredibly lucrative investment, so they have no incentive to share information about this investment with their clients. It's also likely that many brokers don't even know about tax liens, so don't expect them to be particularly enthusiastic when you decide to make this investment part of your portfolio. But the tax lien certificate market is more than 10 billion and growing and that kind of money is worth your attention. Tax lien investors travel around the country attending sales and auctions, and their travel costs are tax deductible as...

Whats Bad for Property Owners but Great for

In most situations, tax liens are not good news for real estate investors they can cloud titles and reduce profits. But tax liens are good when you want to buy tax lien certificates, because you are not buying property but rather the rights of the taxing authority. Here's how it works. For whatever reason, a property owner doesn't pay his taxes. At a certain point dictated by law after the taxes become delinquent, the county (or governing taxing unit) places a lien on the property. Then the county sells the tax lien certificate to an investor for the amount of tax owed plus penalties and interest due at the time the certificate is sold. Eventually, the property owner pays the amount paid for the certificate plus additional interest to the county. The tax collector notifies the investor, who returns the certificate and collects those funds. If the taxes aren't paid within the time set by the taxing jurisdiction (typically one to three years but sometimes longer), the owner of the...

Getting In on the Opportunity

Tax lien certificates are usually sold at a public auction, and the details of the bidding process vary by state. There are approximately 3,300 counties in the United States, each of which has its own rules. Though state statutes govern how tax liens are sold, local governments interpret these statutes, which means local rules, even in neighboring counties, almost always differ slightly from each other. Your first step is to decide what type of tax lien certificate you want to buy liens on raw or improved land or on commercial, residential, waterfront, upscale, or moderately priced property, and so on. This decision is important for two primary reasons. First, the type of property is related to the chance that the taxes will ultimately be paid. For example, taxes on an owner-occupied house are more likely to be paid than taxes on an odd-sized strip of raw land. Second, because there is always the possibility that the owner won't pay the taxes, be sure the property is one you want to...

Choosing the Right Certificates

Imagine that you bought a tax lien certificate for 5,000. The property the lien is attached to is a 4,000-square-foot home in an exclusive gated community with an appraised value of 650,000. After two years the length of time the law allows the property owners to pay you haven't received your money, so you foreclose. You now own a 650,000 house you paid 5,000 for. Between 95 and 97 percent of the property owners whose tax liens are sold pay their delinquent taxes plus the interest and penalties in 24 months or less. But even though chances are slim that you'll eventually get to own the property, it's a good idea to buy certificates only on properties you're willing to own so you don't get stuck with something you don't want. Unless you are extremely experienced with tax liens and familiar with commercial real estate (see Chapter 12), stick with certificates on residential property. Commercial property tax lien certificates are definitely high- A Florida man (not one of my students )...

Step No 5 ForminG Your TeAmThe Reai Key to Reai Estate Investing

While some of you will enjoy the research and the details, others will be content with a little lower return and a lot less work. The answer to this is to build a Tax Lien Team. You can reap the rewards of tax lien investing without doing all of the legwork yourself. Rather, hire others to do the work for you. You already have determined the criteria for your tax lien investing. And you know the risks associated with tax liens that you are going to have to consider with every tax lien investment. You just don't want to spend all of the time and effort on the details of going through the various liens and the properties all by yourself. If you have clear criteria and create good procedures to follow for doing the due diligence, you can turn it over to someone else to do. I suggest you pay these people primarily based on results, but you can also pay them a small hourly wage. I like to give my team members large bonuses for success. Let's take, for example, the tax lien that my friend...

Best to Hire an Experienced Title Abstractor to Perform Your Title Searches

Verified by an experienced title researcher or abstractor. You must understand that an uncovered, but recorded, mechanic's lien, federal tax lien, or third mortgage or deed of trust loan can come back to haunt you at a later date, usually when you are in the process of trying to sell the option on the property. Researching property title information can sometimes be very tricky, even if you know what you are doing. And this is why I highly recommend that you hire an experienced title abstractor to do a title search on a property before you buy an option. To find an experienced title abstractor in your county, log on to the following web site Abstracters Online

Follow Up with Lenders after Foreclosure Sales

1 Several exceptions might include (1) states where the foreclosed owners may have a right of redemption (2) cases where the foreclosed owners still retain some legal right to challenge the validity of the foreclosure sale or (3) instances where a bankruptcy trustee or the Internal Revenue Service (tax lien) is entitled to bring the property within their powers. Rarely would any of these potential claims be worth losing sleep over. But before closing an REO purchase, talk over these issues with a real estate attorney.

Authors Note

I would like to thank Mark Manoil, Esq., for his assistance with this chapter. Mark is the foremost authority in Arizona for tax lien investing and his book, Arizona Property Tax Liens, was the source of much of the technical information included in this chapter. Mark was also gracious enough to spend some of his valuable time giving me his personal insights into tax lien investing. I would also like to thank Darius Barazandeh, Esq., for his assistance with the state variations and subtle nuances of tax lien investing. Darius is an expert in the field of tax lien investing and his training, Attorney Secrets to Investing in Tax Liens, covers the subtle yet vital variations among states for those wanting to use a multistate investing strategy.

How Payday Comes

When you hold a tax lien certificate, you get your money in one of four ways. The first is by the property owner's paying the back taxes plus any accrued interest. The second is by the owner's selling the house in the process you receive the money due on the tax certificate. Third, if the mortgage is in arrears and the lender forecloses, you're first in line to be paid when the property is sold or auctioned before the lender. Finally, if state law allows, you may sell the certificate. Typically, this happens after the redemption period has expired and another investor pays the taxes and interest in order to gain ownership of the property. If you don't get your money in one of those four ways, you'll get the property. But remember that you buy tax lien certificates to generate cash returns, not to get property. If your goal is to acquire property, use the other strategies I've already explained.

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