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Investing in Tax Liens via auction, anyone participate?

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MJ DeMarco

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With the end of the year and a new year starting, it could only mean one thing: County governments start holding their tax lien sale auctions.

Investing in Property Tax Liens | Investopedia

I've been thinking about throwing some "FU" money into some certificates, both Maricopa and Coconino (N. Sedona / Flag) do their sales online. While the general MO for investors is to go after homes in nice areas, I'm looking at focusing on raw land.

Question, does anyone here invest in tax liens? Or tried?

Arizona is a 16% tax lien state, with interest rates bid down.
 

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RazorCut

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Let me see if I have this correct. Basically you are buying a debt secured on the land/property for x cents on the dollar (highest bidder wins).

The property owner then pays you back with interest and within a 3 years period otherwise they forfeit the property?
 
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MJ DeMarco

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Basically you are buying a debt secured on the land/property for x cents on the dollar (highest bidder wins).

The property owner then pays you back with interest and within a 3 years period otherwise they forfeit the property?

Yes, but not that simple.

It gives you the right to foreclose, and that instance is rare. And if it does happen, there's pretty much a guarantee there will be an underwater mortgage as well.

The certificate is in first lien position so you get paid first when resolved.
 

EvanOkanagan

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Years ago I took a course and have read books on tax lien investing. Definitely a lucritive investment it seems—most common case is you see the guaranteed return on your money. I’ve heard it’s a fairly small chance you’ll actually take ownership of the property since the lender will almost always step in to pay the taxes owed to avoid losing the property.

I never really jumped in and invested any money though, seemed like a lot of work being a Canadian citizen to go through the process.
 
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MJ DeMarco

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I’ve heard it’s a fairly small chance you’ll actually take ownership of the property

Yea, you don't do this with the presumption of getting a property cheap.
 

ned.ryerson

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Everytime I look into it I walk away thinking there's just easier ways to make money.

Sent from my SAMSUNG-SM-G930A using Tapatalk
 

Shepherd

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We just won a bid on some adjacent farm ground we hope the owners don't pay up on. It was interesting to talk to the bidders. Most of them were proxy bidders for investors all over the country. Many had a niche as far as the type of properties they bid on. The process was very clean, all the bids took less than an hour total.
 
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MJ DeMarco

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Everytime I look into it I walk away thinking there's just easier ways to make money.

Depends on your state's laws. Are you looking at it from the perspective of filing for a foreclosure?

I'm looking at it from an investor, money-system perspective with a built in securitization.
 

ljean

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Very lucrative but there is some risk and it takes some research & coordination. Its a lottery in my area, they draw a bidder number for each parcel and you get a couple seconds to say yeah or nay. The big buyers bring a few million dollars and 50-100 bidders so their numbers get called. Interest accrues at 2% per month. You have to keep paying the taxes and after 3 years you can start foreclosure. Most of the decent properties pay off fairly quickly. Anything left to foreclose on is often times garbage. I have seen some crazy deals fall through the cracks though like a brand new house lost for a few grand in taxes.
 

JScott

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I've done some tax lien investing, though most of my investments have been with partners (who do the bulk of the work), so I'm not an expert...

State laws are going to vary, so tax lien investing in one area may be completely different than in another area. This goes for both the sales and the foreclosure process. Some things to consider:

- How long is the redemption period. In some places, there's none. In other places, it's 1-3 years. This will impact the likelihood of an owner redeeming versus you having to foreclose. In some places, foreclosure is very rare; in others, it's more common (up to 40% for some investors I know).

- Is yours a judicial or non-judicial foreclosure state? If judicial, you have another year or two after the redemption period before you get the land/property through a foreclosure. You're paying taxes during that time, and potentially other costs as well.

- There's always risks in the transaction: Some liens are senior to tax liens (generally these are other tax liens, but you may not control those); bankruptcy can slow things down and cause issues; if the jurisdiction didn't provide proper notices to the owners; etc.

- If you plan to foreclose and resell the property, and if you want the new buyer to be able to get title insurance, you may have to "quiet title" to ensure that there no other lien holders have claim. In some states, you may not be able to get title insurance without a quiet title action.

- If there's a chance you will have to foreclose, you will want to ensure that the value of the underlying collateral is worth the cost of the lien, the back taxes, the foreclosure, the quiet title and any other costs you might incur during the process. That said, some investors I know factor foreclosure losses into their model -- they assume there will be enough redemptions at X% that any foreclosures will just reduce their average return to Y%, and they're still happy with Y%. But again, you will want to know the stats around the likelihood of redemption versus foreclosure in your area. In some cases, it may be better to not foreclose if the property is not redeemed and just let it get sold again!

Long story short, tax lien investing can definitely be a good source of income, but just like anything in real estate, the "free money" only comes when you understand the process and have a plan in place to mitigate the risks. If you're looking for something completely passive, tax liens probably won't be it (unless you have people working for you), but on the scale of real estate activities, it's relatively passive once you know what you're doing.

Again, I'm not an expert, and I'm guessing the location differences in tax liens is probably a lot greater than I realize, so my best recommendation is to find someone doing it in your area and invite him out for a beer and a chat!
 

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SteveO

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I hired an attorney to meddle between two people locking horns in a lawsuit. One party lost 10 acres to a tax lien foreclosure. He is suing the other party for improper foreclosure. I wanted to purchase the parcel from the latter until the lawsuit started.

There are issues though. The original party has the land blocked off from access. Of course you can file a suit to gain access but it is a costly hassle.

My attorney said that no title company in my neck of the woods would insure a tax lien policy until it has seasoned for a couple of years.

We have offered to use our money to purchase. Title goes back to the original owner and then to us. Our purchase dollars would be split among both parties. And, we are granted access by the original owner. They both settle the lawsuit with money going to them and we get land that can be subdivided and sold.
 
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Shepherd

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I learned yesterday that our lawyer uncovered the details of the farm we bought. Evidently the Executor (older sibling) has been pocketing the rent moneys over the years and not paying taxes while the younger sibling who actually stands to inherit the property is none the wiser. Amazing what people will do to each other for money.
 

DustinH

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I've been thinking about throwing some "FU" money into some certificates, both Maricopa and Coconino (N. Sedona / Flag) do their sales online. While the general MO for investors is to go after homes in nice areas, I'm looking at focusing on raw land.

Out of curiosity, why land in those counties? Is there development opportunity?
 

MJ DeMarco

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Out of curiosity, why land in those counties? Is there development opportunity?

They both have online bid processes and yes, those counties would have the most appealing opportunities because they harbor 2 of larger population centers in Arizona.
 

DustinH

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They both have online bid processes and yes, those counties would have the most appealing opportunities because they harbor 2 of larger population centers in Arizona.

Is that you want to go after tax liens or you want to invest in land?

I’m no expert in the tax lien process but it sounds difficult. Also, sounds like there is little control over the outcome according the AZ state laws. Which is understandable because the government wants to give the current owners every chance to pay their obligations. I know here in TN the owners retain a lot of rights and opportunities to recoup the property. That’s why I’ve never looked into it here. Each state has different processes.

I was going to suggest, if you were interested in throwing your money at land for a long term play, to market to vacant land owners directly. Get a list of vacant land owners in those counties. Especially ones where there actual names listed as the owners and not an LLC. Send them a direct mail campaign saying you want to buy land and they can save a lot of money in realtor commissions by selling to you.

I know around here that there is public information about people who are behind on their property taxes but haven’t started the lien process. So, they might be targeted motivated sellers.
 

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