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| Answer | ·How does my state handle Tax Liens?Please use this list as a general guideline only. Rates and procedures may vary substantially by county and rules may change at any time. In Maryland, for instance, each county can set its own interest rate. California has authorized the change from tax sales to tax liens, but so far no county has implemented the change. Know of a change that needs to be made to this table? Click here
State
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Tax Certificate
or Tax Sale
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Interest
Rate |
Alabama
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Tax Certificates
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12%
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Alaska
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Tax Sale
|
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Arizona
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Tax Certificates
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16%
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Arkansas
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Tax Sale
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California
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Tax Sale (Legislature has authorized Tax Lien Sale)
|
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Colorado
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Tax Certificates
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9% + Fed Discount rate
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Connecticut
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Tax Sale
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Delaware
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Tax Sale
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Florida
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Tax Certificates
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18%
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Georgia
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Tax Sale
|
|
Hawaii
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Tax Sale
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20%
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Idaho
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Tax Sale
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Illinois
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Tax Certificates
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18% |
Indiana
|
Tax Certificate andTax Sale |
|
Iowa
|
Tax Certificates
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24%
|
Kansas
|
Tax Sale
|
|
Kentucky
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Tax Certificates
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12%
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Louisiana
|
Tax Sale
|
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Maine
|
Tax Sale
|
|
Maryland
|
Tax Sale
|
|
MassachuseTs
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Tax Sale
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|
Michigan
|
Tax Sale
|
|
Minnesota
|
Tax Certificates
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12%
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Mississippi
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Tax Certificates
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18%
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Missouri
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Tax Certificates
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10%
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Montana
|
Tax Certificates
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10%
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Nebraska
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Tax Certificates
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14%
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Nevada
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Tax Sale
|
|
New Hampshire
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Tax Certificates
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18%
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New Jersey
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Tax Certificates
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18%
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New Mexico
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Tax Sale
|
|
New York
|
Tax Certificates andTax Sale
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18%
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North Carolina
|
Tax Certificate
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9%
|
North Dakota
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Tax Certificates
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9%
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Ohio
|
Tax Sale
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18%
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Oklahoma
|
Tax Certificates
|
8%
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Oregon
|
Tax Sale
|
|
Pennsylvania
|
Tax Sale
|
|
Rhode Island
|
Tax Sale
|
|
South Carolina
|
Tax Sale
|
|
South Dakota
|
Tax Certificates
|
8%
|
Tennessee
|
Tax Sale
|
|
Texas
|
Tax Sale
|
|
Utah
|
Tax Certificates
|
|
Vermont
|
Tax Sale
|
|
Virginia
|
Tax Sale
|
|
West Virginia
|
Tax Certificates
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12%
|
Wisconsin
|
Tax Certificates
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15%
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Wyoming
|
Tax Certificates
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18%
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Washington
|
Tax Sale
|
|
Washington D.C.
|
Tax Certificates
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12%
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[ Back to Top ]
| ·How do I get started?The most important resource you will need to be successful and make a lot of money in tax liens, is knowledge. It is even more important than money. As the old saying goes, a fool and his money are soon parted. In fact, once you have the knowledge and can find good deals, the money will come to you!
You have a basic understanding of how the system works, a property owner does not pay his property tax for whatever reason. The county needs this tax money to fund its schools, police, fire, etc. It simply cannot allow people to decide not to pay their property taxes. It uses its police power to enforce payment of these taxes.
In about half the States, the municipalities foreclose and take the delinquent property owner's property. It is then sold to investors at an auction to recoup the government's money. These States are called Deed States, since they sell the deed to the property to investors. These States are discussed in the report just below this one on the left border of this page.
In the other one half of the States, after a year or so, the municipality places a lien against the property owner and the property. This lien is superior to all other liens, mortgages or encumbrances on the property, with few exceptions. The lien is actually another form of municipal paper. The property owner can not sell or refinance the property without first paying off this lien.
[ Back to Top ]
| ·What Happens if the homeowner never pays?Now, you ask, what happens if the home owner does not pay his taxes at all? Firstly, that almost never happens. If the homeowner does not pay, and the house has a mortgage on it, the bank or other mortgage holder will pay the taxes to keep from getting wiped out by a county foreclosure. Depending on the State, between 90 and 97% of homeowners pay their taxes and redeem their properties.
Secondly, remember, the county has a lien against the property that it has given the investor as security. The county forecloses on the lien, taking the property, lock stock and barrel! Any other lien, mortgage or encumbrance (with certain exceptions) is wiped out.
The county then, following a procedure that varies in every lien State, passes title to the investor. The investor receives a property for back taxes and penalties, literally pennies on the dollar. A home run! In either case, whether the home owner redeems his property or not, the investor gets paid.
[ Back to Top ]
| ·What is the deal with California Tax Liens?Every state that sells liens has legislation authorizing it to
do so.
The California legislature has authorized the sale of tax liens
but the entrenched tax deed bureaucracy has succeeded in
thwarting its implementation.
Until the counties start offering tax liens for sale, the point
about rates, etc is moot. There are people out there selling
materials on How to Invest in California Tax Liens. They are
scam artists because as we now know, there are no California
Tax Liens!
Until further notice, California is a Deed State, period!
[ Back to Top ]
| ·Is there any competition?The problem is that big banks and brokerage houses are now
discovering how to "securitize" or package tax liens as
security for loans and are now the largest buyers of these
instruments in the country. One bank I follow has allocated
over $200 million dollars for them this year alone. That is an
increase of 100% from last year!
They are after safe, high interest rate returns, not the
properties. New Jersey municipalities auction off delinquent
tax liens using a descending rate of interest as the measure of
someone's desire to buy a lien as opposed to an increasing
price, as some states do.
This means that, although the rates start at 18%, they can be
bid much lower if there is significant competition, as you
point out.
Banks and brokerage houses buy millions of dollars worth of
liens at these sales and for them, 10%, 9% even 3% is a good
deal. After all, have you noticed how much are they paying you
on your checking account or money market fund?
You have several possibilities to deal with this situation. If
you acquire the knowledge you can still find and purchase liens
at the full interest rate of 18%
Frequent auctions at smaller, out of the way municipalities
Wait for the banks to buy their allocation and then you buy
Buy liens that did not sell at the auction directly from the
municipality at the full 18% rate
Take your ball and go elsewhere! There is no law that says you
are restricted to buying liens in New Jersey. There are 30 or
so other states that sell liens. Find one or some that have the
rates, terms and conditions that you like!
[ Back to Top ]
| ·Do you always inspect the property the tax lien is?Always inspect the property securing the lien you are
purchasing. Several months ago, we were investigating a bunch
of liens in Tulsa, Oklahoma for our investors. When we had
finished our computer research, we went out to inspect each one
only to find out that one of the houses securing one of the
liens did not exist!
If we had not checked it out, we would have overpaid for that
lien, bigtime! It works the other way too. One of our students
went to an auction in Kansas. In checking out a "Vacant Lot"
according to the brochure, he found a brand new house recently
build on the site, unbeknownst to the county! He was the
successful bidder and got the house worth over $150,000 for
$27,000!
Other problems could be that the property is in a flood plain,
is being used as a crack house, is 2 feet by 356 feet long,
anything. You Must check out every property, or have it checked
out to be sure.
[ Back to Top ]
| ·What is a County owned lien and how much should I bid?If a lien comes up for auction and it is not purchased
it is "bid in," "struck off" or purchased by the county.
Exactly what the County does with these liens varies greatly
from State to State. In many Counties, they are held for resale
at the next auction.
In some Counties, they are just held until someone comes along
to purchase them. In most of these cases, the County will tell
you what to bid for them. In some County's you can submit a bid
and they will advertise it and then auction is to the highest
bidder. In other cases, you just pay the back taxes, fees and
penalties and the lien is yours. You can then hold them for
redemption or foreclose on them and try to get the property.
Buying County owned liens is one of the insider's strategies we
teach at our seminars. It is a powerful strategy on two fronts.
1- It is a great way to circumvent the mandated holding or
redemption period which starts with the auction date or when
the title to the property is purchased or Struck Off to the
State. If you buy a lien on a property which has been held
beyond the redemption period, you can start the foreclosure
process immediately.
2- Sometimes, you can get a great buy because in some States
like Oklahoma, there is no bidding to buy a County owned lien.
You just pay the back taxes and it is yours. If you are
successful in obtaining the property you have just bought it
for 3-6% of its market value, the taxes owed on it.
[ Back to Top ]
| ·Can you recommend some good books on tax lien?Two books I know of on Tax liens are "Cash Flow" by
Pino and "The 16% Solution" by Moskowitz. Also, Robert Kiyosaki
talks about them in "Rich Dad, Poor Dad" his best selling book
on personal finance. [ Back to Top ]
| ·What the difference is between a Tax Lien and a Tax Sale?There are two basic systems - tax liens and tax deeds. In most cases the difference is that a tax lien has a period of time (called the redemption period) when the owner can get it back by paying the taxes. A tax deed is usually a final act - after the tax deed sale the land is gone and the owner can't get it back. [ Back to Top ]
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