Tax Sale Tutorial from GovernmentAuctions.orgฎ Tax Sale Tutotial (Tax Lien Sale, Tax Deed Sales, Tax Foreclosures) FREE from GovernmentAuctions.orgฎ - a comprehensive resource featuring Government Auctions and Foreclosures What are Tax Sales? There are two major types of tax sales: Tax Lein Sales and Tax Deed Sales. A tax lien sale is a sale of only the taxable lien against the property (Could be related to water, sewer, or property). You are only purchasing the value of the lien. On the other hand, a tax foreclosure auction is a sale of the property by deed where you will receive a deed giving you title to the property. In this article we will explain to the process of purchasing these tax liens and or tax deeds, and how you can ensure that you are in the best position to succeed. How Do Tax Lien Sales Work? What are Tax Liens?
When a property owner fails to pay taxes (water, sewer or property, etc…), for a predetermined amount of time, they put themselves at risk of having a legal claim filed against them by their local government. This legal claim is known as a tax lien. Their local government then has a right to sell the lien to an authorized third party, who in turn has the authority to collect on the lien. The lien is usually a public auction where the third party can purchase the right to collect the back taxes on the property.

What happens at the auction?
It depends on the state, however, the most important advice that we can give you, is to do your research prior to the auction, and be on time. Local governments usually provide listings of these properties, which can be used to research the properties and become familiar with them.

Once you have done your initial research, it is time for the auction. Some local governments still follow the traditional method of holding auctions in person, while others have started holding auctions online. It is important to note that some local governments require a pre-registration for the auction – so be informed of the auction's specificities. Do not forget to bring at least two forms of identification (at least one should be a government issued identification such as a driver's license or passport). Sometimes, liens that are not sold at auction can be purchased on a first-come, first-serve basis. Basically, you can walk in and buy the lien – however, the lien may not always be desirable if it wasn't sold at auction. Remember to do your research.\

You may be asking yourself, why would the government sell the back taxes? Very simply, it is a case of the government wanting to avoid any budget shortfalls – and freeing them from debt collection and allowing them to focus on more essential tasks. More importantly, the government guarantees the liens, and the most current tax lien certificate holds priority over any other liens.

The property owner then has to pay the lien back to the third party. Essentially, a delinquent taxpayer is then obligated to pay their back taxes – with interest – to the third party within a specific time period.

If possible, avoid bidding wars. The redemption rates that states list are only the maximum rates allowed (For example, in Illinois the maximum yearly interest rate is 36%; however, it can be bid to a lower percent – as low as 1% in most jurisdictions). Local governments usually award the lien to the lowest bidder. An investment that only promises a 2.5-3% may not be worth the hassle, especially if you can get a guaranteed rate of return at the same percent with a simple savings account at your local bank.

The Payoff – What You Can Expect to Accomplish
This is where the money is made. For example, in Illinois, the interest rate ranges from 18%-36% a year, with a two-and-a-half year redemption period. Additionally, if the bank or local government were to foreclose on the property, the lien holder would be eligible to receive full maturity on the lien. So say for example, Mrs. Jefferson would purchase a Tax Lien Certificate in Arizona worth $10,000 and the bank or local government were to foreclose on the property the following day, they could be obligated to pay Mrs. Jefferson $11,600 – the cost of the lien at full maturity.

However, if the property owner would fail to pay the lien back, and the bank or local government failed to foreclose on the property, the third party may be able to file a lien foreclosure, which can lead to a Tax Deed Sale (which you can read about here). The property owner and all possible lien holders have been informed of the legal implications of their failure to pay property taxes. The tax deed sale will usually result in either the property being transferred to the third party directly, or would give the property owner the right to make the first bid on the property.

A Tax Deed Sale is a public sale, usually at auction. More importantly, the now owner of the property after the lien foreclosure/tax deed sale, owns the property free and clear. All other liens are usually wiped out – property taxes take precedent, because the government wants to be paid – and any mortgages no longer use the property as collateral. What this means is that you would most likely own the property free and clear; however, it is best to check with local officials to ensure that the original property owner has no right of redemption.

Strategies for Tax Lien Investment – Avoiding Pitfalls
As with any investment, tax lien sales have pitfalls – avoiding these pitfalls puts you in the best position to succeed. For starters, you must pay for a lien certificate, either at the time you purchase it, or within 72 hours. Failure to pay for the lien certificate will result in a cancellation of the certificate a loss of the deposit and a possible exclusion from any future tax sales.

The purchaser also needs to be aware of any additional steps or requirements that need to be taken following the purchase a lien certificate. For example, some states, like Arizona require that the lien certificate holder pay property taxes until the lien has either been paid off or redeemed (the property taxes paid by the holder, are added to the lien amount). Failure to pay property taxes can result in either a cancellation of the tax lien certificate or the loss of tax lien priority at the next tax sale when a new tax lien is put up for auction. A Tax Lien certificate holder must also be aware that they cannot sell their lien certificate at any time (Interest in the lien can be assigned through a will or other legal procedures). Do not forget to record your lien with the local property clerk's office; otherwise you may lose out on your interest in the property.

A common misconception with tax liens is that it is a way to gain property on the cheap – a foolhardy belief. Most property owners pay the lien holder back, resulting in very few, if any properties becoming available. And depending on the state, a property may not be able to be directly redeemed by the lien holder. Rather the lien holder is only given the right to participate in an auction for the property. Even if the lien holder were to acquire the property, they would be obligated to deal with any environmental issues on the property.

Ensuring Success
This does not mean that there is not money to be made. What this means is that purchasing a lien requires hard work. Do your research and most importantly use common sense. The best way to do this is by researching the list of delinquent properties. Most states offer listings of tax lien lists that can be purchased for a minimal amount. Researching these lists, finding good properties, and avoiding land-locked properties or properties with environmental or other problems are the first steps. Once you have found a property you are interested in, you should find an assessment of the property. How much is the property worth? Even though you will probably avoid foreclosure on the property, knowledge of the property and its risks is important. Being stuck with an environmental hazard would result in a lot of stress, not to mention time and money that would make the original lien purchase problematic.

This whole process requires you to be smart, and use common sense. Avoid pitfalls – know what any potential problems can be. Don't just go into an auction and bid on the first property that comes your way. Do your research, and know which properties are the ones that you want, and go into the purchasing process with that in mind. Sometimes the best investment you can make is to hold onto your money and wait for the next property. Be smart with your money, know your risks, know your intent and use common sense. Following these steps will ensure that your tax lien investing experience will be a rewarding experience.

]]> What are Tax Deed Sales

At a tax deed sale, the minimum bid is generally the amount of back taxes owed plus interest, as well as costs associated with selling the property. For example, George Washington owes $1,000 in back taxes plus interest, and it costs the local government $500 to sell the property. The bidding would start at $1,500, and would be done – in most states – in increments ranging from $10–$100. By law, tax deed sales must be announced to the public – allowing potential investors to do the necessary research, and property owners to possibly redeem the property – and are usually sold to the highest bidder.

If a property is not purchased, title may revert to the county government. In most jurisdictions, the county transfers title in a tax deed sale through either a Tax Deed or a Sheriff's Deed. A Tax deed is not a free and clear deed, rather it allows the original owner to redeem the property with a specific time period – depending on the state (For example, California allows one year). A Tax Deed holder can however use the property until a time where the original owner either redeems the property or until they have a free and clear title and would like to sell.

Making money with Tax Deed sales requires patience. Because of the somewhat murky property deed that exists until a property is redeemed, most title insurance companies will not grant insurance until the deed is free and clear which can take a year or more depending on the state.

Some deed states, such as Texas and Georgia, are somewhat of a hybrid in that they sell the property at a tax deed sale, yet allow the owner a redemption period to pay the lien and reclaim the property. Specifically, these hybrid jurisdictions allow the original owner a period of time where they can reclaim their property by paying the amount bid at auction plus penalty. For example, Texas with a flat 25% penalty to be added to the amount paid at the sale (6 months for residential properties; two years for homestead or agricultural properties). As such, purchasers of properties at tax deed sales are cautioned not to make major improvements on the property until they have a clear and free title (after the redemption period has expired).

An interesting benefit to tax deed investing is the secrecy of tax deed sales. It is not a widely known way of investing. For as many people know about tax liens, fewer know about tax deed sales.

Strategies for Tax Deed Investing
As we mentioned earlier, do you research. Of course, what qualifies as research? For starters you need to know what you want to do. Do you want to risk a high investment return, or obtain property ownership? States that have low tax lien interest rates are better suited for those looking to obtain property ownership, while states with a high tax lien interest are better suited for a high return on your investment. However, tax deed sales generally require a larger sum of money to be paid. This is why you need to know how you plan on investing. If possible, obtain pre-financing prior to the tax deed sale to ensure that you are not left high and dry minus your deposit and time spent researching the property.

The Tax Deed Auction
It is very important to know how the auctions run, go to a few auctions and see how they run before you invest. Some auctioneers run pre-bidding seminars, free-of-charge, allowing you to ask questions, and find out the specifics of the bidding process. If you can, attend these seminars – you will be better educated when it comes to purchasing a property at auction.

Awareness of who shows up the auctions is also important. Are they investors like you, or are they banks looking to ensure that their investment in a property pays off (even though they are still owed the money on a mortgage if a property has a tax deed sale, they no longer have the property as collateral). Knowing these issues can help you identify the costs associated with obtaining a tax deed helping you go a long way towards evaluating your investment strategy.

Tax Deed Property Investment – Knowing the Property
What type of properties do you want to invest in? Do you want to invest in open lots, commercial space, residential space, etc…? These are important questions that need to be answered. Once you know what type of property, you can then look to the specific locations of the property.

Know where the property is. Do you want to invest in a certain geographical area? This is important, because it can affect your bidding strategy. Make sure that the property isn't landlocked. If the property is landlocked, speak to the neighbors; find out if there are any easements allowing access to the property, or if there are any other ways to get to the property – otherwise it may be best to avoid purchasing the property. There are different laws for different counties when it comes to tax sales – knowing the differences can mean the difference between a nice return and a substantial liability. Knowing where the property is can help you evaluate their market value.

Properties go into tax foreclosure for a reason. Find out why. Knowing the geographical location can only tell you so much when assessing the fair market value. Check with the local zoning officer to find out the property's permitted uses. Check with the local code enforcement office to find out what, if any code violations exist at the property – and if they do exist, how much it will cost to remedy them. Also, speak to the neighbors – they may know something that may not be readily available.

If there is an open house on a property you are interested, go. All properties are offered as-is, prices are non-negotiable once a winning bid has been placed. It would be wise to bring along a contractor and/or an inspector to help assess any problems with the property. You may also bring along an appraiser to ensure that any bid you place on the property will be a wise one.

Possible Problems
If you find that there are problems with the title, speak to a real estate attorney to help you navigate the legal issues. They know the local laws and can help you if any problems arise with the property. They can also help you dispose of any personal property left behind, such as cars, televisions, computers, etc… A lawyer can also assist with eviction proceedings, if necessary and most importantly help you record the deed with the county clerk's office, enabling you to start using the property.

Finally if you plan on purchasing a property, and are worried about having enough capital, be sure to have pre-financing available to you.

Doing the necessary research prior to the tax deed sale, will ensure that you make the best investment possible.

]]> Final Thoughts on Tax Sale Investing

Doing your research on the properties is only a beginning. If you plan on using tax sales to make a profit, you have to research and know how you plan on doing so. Turning a profit on a large investment takes hard work, time and money. Remember to be prepared – do your research, know your intent, and most importantly use common sense. If you do all of that then you will find tax sale investing to be a rewarding experience. ]]>