Tax Liens

M

m_calingo

Joined
Oct 13, 2003
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Has anyone here ever invested in tax liens?? I'm looking into this a possible future investment, and all of the stuff out there makes it seem nice and rosey.

Curious to hear from folks if they have any experience, good, bad, horror stories, etc.

Thanks!
 
can you give me a little more information? A tax lien is generally levied by a municipality; how are you going to invest?
 
In a nutshell, a tax lien is levied by the municipality for unpaid real estate taxes. An investor can cover the unpaid tax debt and earn "x" percentage on the amount that is covered. The percentage varies from state to state.

The title holder on the real estate is given a finite amount of time to cover the unpaid tax debt, usually three years or so. Again this varies from state to state.

The benefit to the investor is the percentage is guaranteed by the state. It will not vary, for example, like the Dow Jones. Therefore, if the state guarantees you a return of 15% on your investment, then that's what you get.

Another bennie, although some people may not be comfortable with this, is if the titleholder fails to cover the real estate tax on the property, the investor who covers the tax debt can end up with property. This means a person who invests $5000 to cover the real estate tax on a
$150,000 property, for example, can end up owning the title to that property.

Most title holders do end up paying their unpaid tax debt, so the preceding scenario, while it does happen, is not common.

I'm just wondering if anyone here has any experience with this process.
 
My brother's wife's late father did some of that for a while. He did end up owning several properties. And what he discovered is that very often the owner stops paying taxes on a property because it has no market value... and remember, once you own it, you have to start paying taxes on it... and violation fines and etc. and etc.
 
m_calingo said:
Another bennie, although some people may not be comfortable with this, is if the titleholder fails to cover the real estate tax on the property, the investor who covers the tax debt can end up with property. This means a person who invests $5000 to cover the real estate tax on a
$150,000 property, for example, can end up owning the title to that property.
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It seldom shakes out that way. The county auctions off the property and unless it's undesirable there are always plenty of bidders.

Rule of thumb, Don't buy any tax liens on property you wouldn't want to end up owning, or wouldn't be able to sell. Abandoned propertys are an obvious bad deal. The previous owner abandoned it because he couldn't sell it. Don't buy a lien on a piece of property with dilapidated building on it that you might be forced as the owner to tear down.
 
Isn't this a form of factoring? Factoring is extremely high risk - if it weren't high risk, the little guy would never be getting a piece of it.
 
Sounds like another "Get Rich Quick!" scheme. Be sure you know all the facts, and do independant research, before making a significant investment.
 
Gollnick said:
My brother's wife's late father did some of that for a while. He did end up owning several properties. And what he discovered is that very often the owner stops paying taxes on a property because it has no market value... and remember, once you own it, you have to start paying taxes on it... and violation fines and etc. and etc.
Click to expand...

Gollnick, does this mean the property owner stopped paying taxes on the property because he couldn't sell it or rent it? This would also mean the property owner was willing to eat a significant loss on the down payment that was made on the property, am I right?
 
m_calingo said:
Gollnick, does this mean the property owner stopped paying taxes on the property because he couldn't sell it or rent it? This would also mean the property owner was willing to eat a significant loss on the down payment that was made on the property, am I right?
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Probably. But, the owner probably already worked the propery to death and got his investment out of it already.

Consider, for example, buying a big old house. You get it cheap because it's a real "fixer upper." You do the absolute minimum to get it habitable and you throw up some walls and divide it into four appartments. You rent 'em cheap to low-brow tenants for five years keeping just one notch above the health inspectors. Ultimately, the roof caves in in one area. One tenant has a small fire. One tenant moves out leaving behind five or six cats which weren't authorized in the first place and the unit is trashed, etc. You've recouped your original purchase and fix-up costs, made a nice return, and now you want out. But nobody will give you a penny for it because the house is beyond repair and the asbestos abatement and removal of the old oil tank will cost ten times what the land is worth much less the cost of tearing down the old house. So, you just abandon it. And whoever is stupid to pick up the tax lien ends up owning it. Lucky him.
 
This would also mean the property owner was willing to eat a significant loss on the down payment that was made on the property, am I right?
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I can think of several situation where that might occur. What if the necessary repairs or past taxes due outweigh the property's value. Maybe if the surrounding area has declined dramatically. Perhaps if the owner has no interest in the property, an absentee landlord who's never even seen the property. A run-down rental that no one wants to rent...
 
Gollnick said:
Probably. But, the owner probably already worked the propery to death and got his investment out of it already.

Consider, for example, buying a big old house. You get it cheap because it's a real "fixer upper." You do the absolute minimum to get it habitable and you throw up some walls and divide it into four appartments. You rent 'em cheap to low-brow tenants for five years keeping just one notch above the health inspectors. Ultimately, the roof caves in in one area. One tenant has a small fire. One tenant moves out leaving behind five or six cats which weren't authorized in the first place and the unit is trashed, etc. You've recouped your original purchase and fix-up costs, made a nice return, and now you want out. But nobody will give you a penny for it because the house is beyond repair and the asbestos abatement and removal of the old oil tank will cost ten times what the land is worth much less the cost of tearing down the old house. So, you just abandon it. And whoever is stupid to pick up the tax lien ends up owning it. Lucky him.
Click to expand...

Wow, that would be a horror story! :eek:
 
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