The Wonderful World of Tax Sales

Copyright 2003 by TaxSaleLists.com, All rights reserved. Printed in the United States of America. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in any data base or retrieval system, with the prior written consent of the author.

Consult with competent legal counsel prior to investing or initiating investments in Tax Liens or Tax Deeds.

Disclaimer: The accuracy of any specific provision originating from this manual cannot be assured, and you are urged to consult the official documents or contact legal counsel of your choice. This manual should not be cited as an official or authoritative source. This manual is based on the current statutes, as understood by the author, of the respective jurisdictions at the time of printing. Please be aware that statutes change regularly and that you should consult with the local officials for details relating to a specific tax sale.

Are Tax Sales for You

This paper is intended to be a general introduction to the area of tax lien sales and tax deed sales. I do not pretend to be an experienced writer and I have tried to make the materials conversational in nature and easily understood. Having read over 12 different, currently available, tax sale instructional books, and being very unimpressed with most of them (I wonder if some of these people have ever really bought a tax lien) I have tried to give specific methods and information based on over $140 million dollars worth of purchases of tax liens and due diligence on over 1,000,000 properties in the past ten years. In almost every state in the country you have the opportunity to acquire real estate for below market value how far below market value will depend on the state but in some instances it can be for a very small fraction of the value. This part of what the infomercials tell you is true. The stories are legend about houses being purchased for $300 to $5,000 or commercial strip malls for $20,000 that are worth $5,000,000. These are true stories, but they are not why we are suggesting you get involved in tax sales. If those stories happen to you great, but we want to show you how to make consistent money from tax sales, year in and year out, so you have the opportunity to hit that home run. We are going to teach you how to hit a lot of singles, a fair amount of doubles, a few triples and every now and then a home run. But hold on, we are getting ahead of ourselves. What is a tax sale? Seems like a simple question, but it really isnt it depends on where you ask the question. Every state in the country has a mechanism to collect delinquent taxes, but no two states use the exact same method so there are 50 different answers. But the question can break down to two main answers. Tax sales that offer the owner of the property some method of saving his property and Tax sales that are final. For the

purpose of this paper we will call those tax sales that offer the owner of the property some method of saving (or redeeming) his property tax lien sales and we will call those sales where the sale is final a tax deed sale. You will need to learn about both in detail, but more about that later. For the time being lets continue the discussion in general terms. When the taxing jurisdiction is not paid the real estate taxes that are due, there are consequences for the delinquent property owner and consequences for all those people who paid their taxes on time. The taxing jurisdiction needs the money, if they dont get it from somebody, the rest of us have to make up the shortfall. This can be done in a number of ways, but the most common is for the taxing jurisdiction to plan for delinquencies and to make the tax rate higher to compensate for the expected delinquency. If that is done, then we all pay more to make up for those who have not paid. Since tax delinquencies on a national basis run around 2.5% to 3.5% that means your taxes are 2.5% to 3.5% higher than they could be. To discourage delinquency the taxing jurisdictions do a number of other things. They make it punitive to not pay your taxes. This starts with penalties and interest charges for late payments and if you still dont pay they arrange for you to lose your property to someone who will pay the taxes. This is done through the tax sale. Those states that have tax deed sales (no redemption for the property owner) generally wait a number of years before they sell the property but when they sell it, it stays sold. Over half of the states in the US use a form of tax deed sale. The tax deed sale is ideal for the investor who wants the real estate. You know what you are buying and you know if you are the high bid that you bought it. In some jurisdictions you will find that the taxing jurisdiction will even finance the purchase for you, but most dont. Those jurisdictions that have tax deed sales will sell fewer properties at the tax deed sale than the jurisdictions that have tax lien sales. For example, the total tax deed sales in the state of California are less in number than Dade County, Florida holds in tax lien sales. Other than fewer properties for sale, the tax deed states usually require a much higher price for

the property than you would end up paying for the same property in a tax lien state. Often there is a requirement that the property be appraised before sale and that it sells at or above the appraised value. This does not mean that you cant get good values at a tax deed sale because appraised value is often quite a bit below market value. The main thing to remember is that when you bid at a tax deed sale you are attempting to buy real estate and if you are a successful bidder you have bought real estate. Those states that have tax lien sales (sales with a redemption period for the property owner) take a different tack. Instead of waiting several years to collect the delinquent taxes they sell, every year, the uncollected tax bill, including penalties and interest, to a third party investor (thats you). The buyer of the tax lien is buying the rights of the taxing jurisdiction to receive interest, penalties and costs and their security for this investment is that they have the right to acquire the property if they are not paid before the expiration of the redemption period. Again, right now we are going to talk in general terms. The vast majority of these tax liens will redeem. The actual redemption rate varies by state and by county within a state, but in most cases will be more than 90%. So these investors will usually not end up with the property, but, instead, will make a return on their investment that is quite attractive. How attractive? Again, this varies by state and even by county within states, but it can be as high as 30% in some instances and often exceeds 12%. Sounds easy but there are a few catches. Governments are very reluctant to throw people out of their property (it is bad politics), so they make the requirements that have to be met to get the property very specific. That doesnt mean they are difficult, you just have to make sure they are followed. As I said, in most cases that is not your concern because the lien will redeem. In most jurisdictions you do not have to do any collection work to do the taxing jurisdiction collects the money and pays you. In some jurisdictions you are prohibited from doing anything to collect or even contact the property owner and in almost all jurisdictions you are prohibited from entering the property. Why? Simple, you havent bought the property and you have no ownership rights (there are a couple of exceptions which we will cover in detail in the state directory). In the 3% to 10% of the cases where you end up with the property, you

usually get the property free of any other liens or mortgages (the exception may be governmental liens). The confusing aspect of all of this is that terms are used in both deed and lien states that are the same, but may have different meanings. Almost all deed states have tax liens, but the liens are not sold, they are held by the taxing jurisdiction and foreclosed by the jurisdiction. So you have to have some understanding of the terms used by the jurisdiction and how they are meant. In tax lien states you will find a number of different terms or names used. Some of them are: Tax liens, tax lien certificates, tax claims, tax bills, tax sale certificates, certificates, delinquent certificates, tax deeds and so on. One of the things we will cover in detail in the state directory is the terms used in that state. In tax deed states you will hear the term tax foreclosure, tax deed, tax taking, delinquent foreclosure. How do you profit from a tax sale? Again, it depends on the type of the sale, but if it is a tax deed sale you are trying to buy low and sell high. What you bid for the property will determine your cost if you buy it below true market value and resell it at market value you make a profit if not Oops! You may be buying the property as something you want to build on or live on in that case your profit will be deferred until you sell the property. A tax deed sale is really for buying the property and your judgment will determine if you paid the right amount. In a tax lien sale you profit through one of two methods. Method one the property owner redeems the lien or certificate and you make interest on your money. This can be a sizeable amount of interest, depending on the jurisdiction. If the property owner does not redeem then you may have hit a home run, or you could have struck out that will depend on what you bought a lien on. If it is a nice three bedroom house in a good neighborhood that is in decent condition home run. If it is a burned out crack house in the worst neighborhood in town you may have struck out. Just remember one thing, nobody guarantees that you will make money. TAX LIENS ARE NOT GOVERNMENT GUARANTEED!!. I see write ups and sale brochures that claim they are they are not.

How long have tax sales been around.? There are records of similar sales occurring in England during the 1700s and it is assumed that they came to America from England with the settlement of this country. Tax sales have been very common since the mid 1800s in this country so we are not talking about some Johnny come lately scheme. Tax liens have become somewhat popular in the past ten years, but there are plenty of liens to go around. Our estimate is that the total sales at tax sales in 2002 was in excess of $13 billion dollars. Of that number we estimate that about $11 billion was tax liens and the other $2 billion was tax deeds. Another way to put it we estimate that there were over 2.0 million tax liens sold last year and approximately 250,000 tax deeds. We know that we will post over 4,000 tax sale lists on www.taxsalelists.com this year and, frankly, expect to post almost 7,000 lists next year. There are plenty of tax liens and tax deeds available for everyone. How many tax lien and tax deed states are there? The short answer is all of them. The long answer is more difficult. The reason is that the laws are always changing and what is true today may not be true tomorrow. As an example: Michigan was one of the best tax lien states for years it is no longer a tax lien state and has become a tax deed state. Florida is both a tax lien state and a tax deed state confused yet? The general answer is that there are about 28 tax lien states and that means there are 22 tax deed states but stay tuned, that could change. As another example: California is a tax deed state but they have legislative authority to be a tax lien state that means they could be both tomorrow. What is the procedure? Each jurisdiction has a due date for taxes. If the taxes are not paid by that date the taxes are declared delinquent. That starts the ball rolling. Depending on the jurisdiction there are a number of steps that have to take place before there is a tax sale, but at some time it is usual for a court to declare that the properties are delinquent and that the properties and/or liens on the property are to be sold. This is usually followed (although sometimes it precedes the court action) by a public notice that the properties are delinquent and are to be sold. That is your first notice that there are properties for sale. There are a number of ways you can get this notice. You can call the

jurisdiction on a periodic basis to find out if a sale is coming (in some jurisdictions the sale date is set by law), sometimes you can get your name put on a mailing list and be notified, or you can go to www.taxsalelists.com and get the list in a computer readable format for a nominal cost. Once you know of a sale, the fun begins but more about that later. Right now we want you to understand that you will hear the term tax sale and it could mean a tax deed sale or a tax lien sale. It will be up to you to determine which it is and if it meets your needs. You have read the first chapter of a 140 page book called the Comprehensive Guide to Tax Sales. In this book we cover the following topics. Below is the table of contents. Introduction The wonderful world of tax sales Tax Liens Tax Deed Sales Risk and Reward Bidding Methods Due Diligence Introduction to Land Survey Systems Sale Time Iowa Bidder Package After the sale is over Servicing the Purchase Redemption: Who, What, When and Why Going to Deed Postscript 4 5 13 22 27 37 53 66 74 85 106 110 120 127 137

I have written this book because of all the misinformation that seems to be running around out there about a subject I love very much. Exactly how you make money from tax sales. If you would like to know more about this profitable area of investing please go to our web site at www.taxsalelists.com and order The Comprehensive Guide to Tax Sales. The cost is $85.00, which when you realize you are getting the experience of a successful tax lien buyer is not very expensive. In addition, we have done a book on each of the tax lien states and will soon have a book on each of the tax deed states. The state books run around $30 to $45 per state. These books can be ordered in combination with

The Comprehensive Guide to Tax Sales at a discount of around 20%. The link to the page about our manuals is www.taxsalelists.com/manuals.htm . These are not books filled with cute cartoons and multi colored diagrams just facts. Our state books are not, like some, lists of phone numbers and addresses. We do include contact information for the jurisdictions, but they take at most 1 or 2 pages of the state books. We go over the statutes in detail and explain how you best protect yourself and your investment. If you go to our web site www.taxsalelists.com/manuals.htm you can read some comments from those who have purchased our manuals. I hope to hear from you.

John Lane TaxSaleLists.com LLC