Thursday, February 6, 2014


Many current seminars on real estate often have at least one speaker who touts the virtues of purchasing tax liens and deeds. They portray an ease of purchase with near virtual guarantee of high interest rates and returns. To entice you into their program, they may offer you not only software to help in researching the lien and deed states, but also a website to purchase the liens or deeds directly from them.

Usually I can resist the temptation but succumbed to one temptation when they promised $3000 in coupons to use to purchase their tax liens. What they didn’t tell you was that the coupons were in $50 increments and you could only use one coupon per transaction. It was going to be a long time before I recouped my $3000. Other than this one aggravation, however, I have not participated fully in any of these programs so I do not want to point fingers or name names here. But since so many people are being coaxed by these offers I wanted to touch on this subject.

This is NOT an in-depth discussion on tax liens and deeds and I am not giving tax or investing advice, just my observations and experience.

Some years back I purchased a tax lien and deed program and delved into the subject for several months and made some money at it, but there is no free lunch and you still have to put time, energy and your money or opm (other people’s money) into the task.

1)    First realize that tax liens and tax deeds are two different beasts.

A tax lien is a piece of paper representing the purchase of a tax liability of another person or company. You will get paid when the person responsible for the liability pays it off.

A tax deed is the actual deed to the property. Since I did not purchase any property by use of the tax deed, I am going to concentrate my comments on tax liens. However, much of what I say still applies to both processes.

2)    You can make the purchases of tax liens and deeds yourself direct from the county tax collector which is what I did. You don’t have to have a middleman. I hope to recoup my principle, interest and penalties that should be paid by the other party. It has been nearly 7 years from the date that I purchased the liens.

I picked Sarasota County in Florida to purchase tax liens because all the county records, plot plans, tax assessor and tax collector records were online. I could do my bidding online and wire the purchase funds. Go here to see the current: Property Taxes County Held Certificates. To see process for forcing liens to sale go to: Tax Deed Sale Process

In my opinion, the purchase of a tax deed carries more risk than the tax lien because you are buying the actual property when you buy the tax deed. Any of the due diligence that you would use to buy any property should be exercised here.

3)    There is a timing issue. Is your goal short term or long term?

There are several aspects to timing:
a)    County auctions for tax liens and deeds are generally conducted twice a year, but there may be some tax liens and deeds available otc (over the counter) that are made available after the regular auction. These are liens and deeds that did not sell at the regular auction. But then you have to ask yourself why they did not sell.

b)    You only get paid on the tax lien when the current or new owner of the property pays the tax and penalties. I recently received a notice from the Sarasota County Tax Collector that I had two tax liens that were coming up on their 7 year expiration date (after that date I would not be able to get my principle or interest back. I have to force the sale of the property to pay off the tax lien. I am currently in this process.)

4)    On liens you may have to foreclose on the property in order to get paid. If you have done the research to insure the property is worth pursuing this is an option.

5)    The redemption period which allows the property owner to pay back the taxes and regain their property varies from county to county. It can be as short as a few months to five years or longer. And even in the case of the tax deeds where you actually gain the deed for the property, some counties allow the former owner to regain their property a year or more after sale.

So what you see is the property sitting idle for the redemption period. This causes grief because you want to fix up the house and sell it, but you don’t dare. The former owner may come back during the redemption period and reclaim the house along with the repairs that you have made and you may not recoup your repair costs, so you board it up and leave it vacant, or you may move in with little assurance that you will be able to keep the house. If you try to sell it you have to do it with a clouded title.

6)    With tax liens, the percentage of interest and other penalties vary from county to county. At auction, you are bidding on the interest rate that you are willing to accept on our payment for the lien. You are not bidding the interest rate up, you are bidding it down. The county wants its tax money, but it does not get the extra money paid for the penalties and interest. That is what you get. The county wants the current owners to be able to recoup their property. If you have done due diligence you might be willing to bid the interest rate all the way down to zero with the intent to force the home into foreclosure. You bid the lowest interest you are will to accept although you may get something higher depending on the other bids. (I have over simplified this, so read the instructions and disclaimers on the website for the county where you are bidding.)

7)    Large companies buy the liens in bulk. I am assuming that the programs currently peddled at the real estate seminars include liens that where purchased in bulk. I am suspicious when they say they have conducted the discovery and due diligence to insure that their offerings are risk free and that I would not be buying a lien on a property under literal water in the Everglades.

Google map was new at the time I was making my purchases, but I was able to focus in on many of the plots of land to see what the actual property looked like. I found plots that were in canyons and underwater. Needless to say, I did not bid on those property liens. I was not sure if I would ever get paid.

8)    Because large companies tend to buy in bulk and tend to zero in on the larger, wealthier counties, you may be able to find good tax deeds and liens in smaller rural communities, counties that are not completely online, and away from major metropolitan areas.

9)    Usually you have to pay cash or wire the funds within 24 to 48 hours after the close of auction. Some counties take cashier checks, but no personal checks.

10) I would suggest visiting a few auctions as an observer, reading the websites for the various counties that interest you. Don’t pick liens or deeds for properties that are in war zones unless you are extremely familiar with the area and know the good and bad areas.

Investigate the community of interest. See whether people are moving in or out of the area, whether there have been or are expected to be any major changes in employment or construction. Are any major companies moving in?  People often think the person was lucky who was able to sell their farm to CalTrans for a new freeway exchange. Maybe that person just researched where the new state highway was being constructed. Such plans are usually at least 10 years out.

Be mindful and conduct your discovery and due diligence. These are some of the pros and cons of buying tax liens and deeds. I am sure there are many more.

(For investment funding text "FUNDING" to 41411.)

1 comment:

  1. One of the tempting areas when it comes to making money is flipping properties. Do not go into this field without having a good accountant in your corner. The laws change annually, and one mistake could cost you huge in fines, interest, and penalties. Yes there is plenty of profits to be made flipping, just don't give it all away filing your taxes incorrectly.

    Wanda Hanson @ Tax-Tiger