In the auction the highest bidder wins. The bidder then pays cash to the government in exchange for the lien, thereby transferring the risks and rewards of the lien from the government to the bidder.
When you purchase a lien the property owner is required to pay back the entire value of the lien plus interest. Interest rates can vary widely from one location to another. Typically they may run from 5% to 36%. All of the interest goes to the lien holder. The lien will be structured to give the property owner a period of time in which to pay the taxes, usually between six months and three years. In the event the property owner cannot pay off the lien (with interest) in that period, you have the right to foreclose on the property – or take ownership of it. This is a complex and time-consuming process and should involve the assistance of a lawyer. [2] X Research source .
A list of counties in the United States can be found at http://www. naco. org/Pages/default. aspx. Government financial statistics are a matter of public record. You should be able to find information on county finances on the Internet. Try doing an Internet search for the records of a county you’re interested in.
You should specifically find out when the county can legally place a lien on a property. If they don’t follow proper procedures, you could wind up with a lien that was illegally placed, in which case you could lose your investment. Keep this in mind as you investigate specific properties, and make sure a lien is legitimate. [4] X Research source Find out if there are any legal limits on what you’re allowed to do in collecting payment from property owners. Are there specific times of day you’re allowed to call? How many phone calls or letters constitute harassment? Make sure all of your collection efforts are legal. Learn the foreclosure process in your area. If a homeowner fails to satisfy the lien within the prescribed time period, you can start foreclosure proceedings to obtain the property. Foreclosure laws vary. Use http://www. foreclosurelaw. org/ to find foreclosure laws in your locality. If you’re having trouble navigating county laws, you might want to speak with a real estate attorney with experience in these matters. He or she can fill you in on all you need to know about local laws.
Inquire about when and where the next sale will be held. Find out the format of the auction. Sometimes they’ll ask for bids on the lien. For example, bidding may start at $1,000 and then rise as bids come in. In other cases, you may bid down on the interest rate for the lien. In that case, the interest rate may start at 20% and go down. Find out which format your county uses so you can devise a strategy for the auction. Remember that the homeowner’s liability is not affected by how much you pay for the lien. Even if you pay too much, the owner doesn’t owe more than the original tax bill and interest. Keep that in mind when planning your bids.
Keep in mind that leftover liens may have gone unsold simply because they were bad investments. If you do come across any unsold liens, investigate the properties carefully. It’s possible that you discovered a gem that no one noticed at the last auction, but the lien could be a money pit, too. Find out everything you can about unsold liens to make sure you’ll be making a good investment.
A good way to do this is to think about how much money you have to invest. If you plan on investing only a few hundred dollars, then you can easily cross off any liens that require more money than that. If you have several thousand dollars to invest and are looking for a big profit, don’t bother with smaller liens. You can focus on particular types of liens. Tax liens can be placed on residential or commercial properties, so focusing on one or the other could narrow down your list.
Find out if there’s a mortgage on the property. In this case, the lender might step in to pay the lien before you get a chance to buy it. Lenders might be willing to pay more than you would to protect their larger investment in the property and prevent foreclosure. They also might try to legally stop you from foreclosing on the home if you do manage to buy the lien. [9] X Research source It’s better to go for homes that have the mortgage paid off, because you won’t face competition from mortgage companies that have a lot more money at their disposal. Dilapidated properties in economically depressed neighborhoods are a very risky investment. Such liens might carry higher interest rates, but if the occupants are unable to pay their debt, the interest rate won’t do you any good, and you’ll wind up losing money. Sometimes occupants owe more in back taxes than the value of the home. This means that if they abandon the property, you won’t even be able to earn back your investment by selling the property. Avoid such places, or at least invest with caution. Properties that have suffered environmental problems such as chemical contamination are a risk as well. The cost of the cleanup will probably outweigh the potential profit to be earned from back taxes. Take, for example, old gas stations. These properties need a complete overhaul. Old gas tanks have to be dug up, and the ground has to be decontaminated. This is a dangerous investment that could easily end up losing you money.
Remember to take other expenses into account besides the cost of the lien. For example, if the homeowners fail to pay their taxes, you might have to start judicial foreclosure proceedings. This will lead to legal fees, which can get expensive. Keep this in mind when deciding how much to spend. The lien sale, whether online or in person, should feature a typical auction format. The lien for sale will be announced, an opening price will be set, and then bidding will start. Pay attention during the auction so you know when a lien you’re interested in comes up. Usually auctions require payment in cash or certified check. Add up what you’re willing to spend on your liens, and bring either enough cash or a few certified checks. Some auctions allow you to finance a purchase. If this is the case, you should get pre-approved to avoid administrative slowdowns. [10] X Research source
When notifying the property owners, send a certified letter to their address. Let them know that you’ve bought the lien on their property. The county is supposed to notify a property owner when a lien is offered for sale, so they should already be aware of this possibility. Let them know how much they owe in back taxes and when this amount must be paid.
