State and County-specific Tax Sale Questions

Florida

If a property is recorded as Homestead, what does that mean and should I avoid it?

Homestead properties are not necessarily bad but they have a stipulation that goes with them.  Understanding how they work will let you know if they are ones that you want to work with or not. 

A homestead property means that it is someone's primary residence.  It also means that they have applied and received and exemption of taxes because it is their homestead. S o they pay less taxes because it is their primary residence.  How does this apply to you?  If you decide to apply for a tax deed, which is the process that Florida tax liens go through, then you will have to pay for half of the assessed value at this time plus pay for the tax deed application. 

Once this takes place then the property goes up for sale as a tax deed.  All of the properties go for sale as tax deeds in Florida, that's the process required of all tax liens.  Once a property is past the two year redemption period then you can apply for a tax deed.  This allows the county to get a title search done and all of the certified letters sent out to all of the people with interest in that property-hence an administrative foreclosure. 

At this time if a property is a homesteaded property then you will be required to put down half of the assessed value to take it through this process.  The worst that could happen is that someone may not purchase it at the auction and you would be left with a property for half cost.

That may not be so bad if you were able to sell it or use it as a charitable write off and donate it or rent it out or even live in it.  You just want to make sure that the property is in good enough shape that you wouldn't have trouble doing any of these things with it if you did end up with it. 

If a property that is not a homesteaded property then you only have to pay for the tax deed application and the back taxes. 

I noticed in Florida some of the properties have tax liens that had been filed previously on them, yet the new tax lien was still available.  Does this mean the first tax lien holder would have first option over me?  Is it common to have multiple tax liens on properties?

That is correct with a minor correction on the details.  After the two years of redemption has lapsed in Florida then it goes to one more sale the tax deed sale.  If no one buys it at the tax deed auction then you can either take it or it goes up to what is called lands available where someone might purchase it there if they like. 

With AZ then that is the way that it works after three years you can do a judicial foreclosure on the property and it will become yours.

In July 2012, I purchased a property at the tax deed sale. I am trying to sell the property, currently doing the quiet title action. I now received the tax bill for 2012 and it says that I need to pay the taxes for the whole year.  Do I only need to pay for the period from now to when I purchased it?

Also, there is a waste water services debt from the previous owners that was now transferred to me.  Is the lawyer that I am working with supposed to claim that from the surplus as part of the quieting of the title?  Can that debt be claimed as it is not yet a recorded lien?

First of all now that you own the deed you will be getting taxed for the deed each year that you own it and the taxes are assessed yearly.  You can make arrangements with the county if you need to pay them off in installment payments.  Any water or sewer bills do go along with the deed.  This is something that you will have to pay.   Also, any liens that are government or county issued will go along with it such as an IRS lien or something of that nature. 

Quieting the title will be something that will have to happen after the water bill is paid or at the same time but you will still have to pay it.  That is one of the encumbrances that go along with tax deeds.


Georgia

It appears Ga is a Redemption Deed state, but the county lists appear to be hard to understand compare with many of the other state counties.  Could some give me a little guidance?

In GA there is an auction the first Tuesday of every month.

This is for all of the counties.  Once you have selected a county then you will need to attend the auction at the county court house the first Tuesday of the Month.  They generally start at 10:00 am.

The list will come out after the 15th of the month for the next month.  This will give you something to start with. Once you have a parcel number of the property then you will go to the county assessors website.  Here you will find a parcel search engine where you will enter in the parcel numbers and then click search.  This will bring up all of the information about this property: address, assessed value for the land, and the assessed value for the improvement on the property.  It will also give you the taxes and the delinquencies. 

The opening bid will start at the back taxes, fees, penalties and interest.  It will go to the highest bidder and it is for the deed so the prices will be higher than the liens.  The property does however have a redemption period of one year for a 20% penalty. 


Hawaii

In Hawaii there is a 12 month redemption period after the deed has been sold at auction.  Must I foreclose on the property after the 12 months, or is this a silent process that requires no action on my part?

You do not need to foreclose if you choose not too but you will need to find someone to take over the lien from you (purchase or otherwise) that will want to do the foreclosure to make sure that you get your money back. 

Hawaii properties have such a great value, so it's hard to believe that someone wouldn't want to go through with the process.  It is not a silent process that requires no action on your part.  It is something that needs to happen and you could either let a lawyer do it for you or you could set a date in front of the Judge for foreclosure and then make sure that all of the interested parties that have recorded interest in the property receive a registered certified letter stating your intention of foreclosure. 

The people who receive the letters will then have that short window to come up with the money plus your interest in order to keep the property out of foreclosure.  Tax foreclosures are similar to but different than a regular bank foreclosure.  Once you go before the Judge then no one have the right to redeem.  This will be after the year's redemption period is over.

What are the top 5 states for tax lien investing?

If you ever wondered “Where is the best place to invest in tax liens?”, here are the top 5 states for tax lien investing.

Texas

Texas is actually not tax lien state, but a redeemable deed state. The nice thing about purchasing a redeemable deed though, is that you get a penalty when the deed redeems, not an annualized interest rate as you do with liens. This means that it doesn’t matter when the deed redeems, you get the full penalty, not a fraction thereof. And in Texas the penalty is 25% in the first 6 months, 50% in the first year. So if the deed redeems in the first 6 months you get 25 percent on your money and if it redeems in the first year you get 50 percent on your money.

The redemption period in Texas is only 6 months for non-homesteaded and non-agricultural properties. So if the deed redeems, you only get the 25 percent on those type of properties and if the deed doesn’t redeem in 6 months, you receive ownership of the property. That is another nice thing about redeemable deeds in this state; you are considered the owner of the property as soon as the redemption period is over and you do not have to go through foreclosure procedures. You will have to clear the title, but that is something that you would have to do with any tax foreclosed property anyway.

Unlike some of the other redeemable deed states, in Texas you actually receive the deed at the sale and must record it with the county clerk. Once the deed is recorded the redemption period starts. You are considered the owner of the property and can take possession of the property, but you won’t be able to get clear title until the redemption period is over. Also you’ll want to be careful about renting or renovating the property since the previous owner still has redemption rights until the end of the redemption period.

Illinois

In Illinois the interest rate is 18% but unlike other states that have an annual maximum interest rate of 18 percent, in Illinois the rate is not per annum, It’s more like a 6 month penalty rate, so your annualized interest rate in Illinois is 36 percent. The redemption period is 3 years.

Counties in Illinois may have 2 types of tax sales. At the annual tax sale the interest rate is bid down and the tax lien is awarded to the investor with the lowest bid. Some counties will also have a “scavenger” sale of items that did not sell in previous tax sales. The bidding for this sale is different than in the first tax sale. Instead of the interest rate being bid down the certificate is sold to the highest bidder for cash, and it may be sold for less than the original delinquent tax amount.

Iowa

In Iowa the interest rate 24% per annum. This rate is not bid down at the tax sale. But the down side to that is that the percentage ownership in the property should the lien not be redeemed is bid down at the tax sale. It is the investor willing to take the smallest percentage in the property that wins the tax lien. So though the annual rate is high in Iowa, there may not be as much incentive for the owner to redeem the lien, since he doesn’t lose the property entirely if he or she doesn’t redeem the lien. What’s good about Iowa is that the percent ownership is not always bid down. This depends on the procedure followed in each county. Some counties will award bids based on a lottery system rather than a bid down the ownership interest system of bidding.

Georgia

Georgia, like Texas, is another redeemable deed state. But even though it is a redeemable deed state, the redeemable deeds in Georgia are more like liens than deeds. Unlike Texas, you are not considered the owner of the property, and have no right to the property, until the redemption period is over and you foreclose the right of redemption. This is actually more like a lien than a redeemable deed, with the exception that you do get a penalty of 20%, not an annualized interest rate, if the deed does redeem. The 20% penalty is paid on the full amount that is bid at the tax sale. Since the price of the deed is bid up at the tax sale, this can make redemption difficult for the property owner and the possibility of actually foreclosing on the deed more likely for the investor.

Nassau County, NY

Most of New York State sells deeds, not liens. The 5 boroughs of New York City do sell liens but not to individual investors. They bundle their liens into large packages and auction them for millions of dollars to big fund companies. There is one NY county that has a very well attended tax lien sale each year, and that’s Nassau County. The interest rate is 10%, but like Illinois, it’s 10% per 6 months, not per annum. So if you are lucky enough to get the default rate on a Nassau County tax lien, you actually get 20% per annum on your lien. The villages of Nassau County hold their own tax lien sales once a year, adding to the opportunity of the investor to accumulate liens.

The top 5 states for investing in tax liens online

Florida
Florida is a state that is worth looking at for the online tax lien sales. The interest rate in Florida is 18% per year. Most counties in Florida do have online tax lien sales. Tax Sales are held once a year in May and the interest rate is bid down quite low, but there is a minimum 5% penalty, so regardless of how low you bid, if the lien redeems you will get at least 5% on your money. Another plus for investors who do not live in the state is that as long as you do your due diligence and bid on good properties you are not likely to get the property. Instead of foreclosing on the property if the lien doesn't redeem, in Florida you apply for the lien to go to a deed sale. The property will then be auctioned off in a tax deed sale (some of these are online as well) to satisfy the lien.

Maryland
Another state that has a default interest rate of 18% per year is Maryland, and while not many counties in the state of Maryland have online tax sales, the City of Baltimore does have a very large online tax lien sale each year. In Maryland the interest rate is not bid down, instead of bidding down the interest rate, premium is paid for tax liens. You do not have to pay the entire premium at the tax sale. You only need to pay a portion of the premium along with the amount of the lien at the tax sale. And only if the lien does not redeem and you foreclose on the property, do you have to pay the remaining premium (and any outstanding taxes). The Maryland counties have a somewhat complicated way of determining how much of the premium needs to be paid at the tax sale (this is known as "high bid premium") and you should make sure you understand this before you bid in any of the Maryland tax sales. There is a detailed description of the formula for high bid premium in the Buying Tax Liens Online course. Another plus for the investor in Maryland is that the redemption period is short - only 6 months in most counties.

Indiana
Indiana is another state where premium is bid for tax liens and there are a handful of counties in Indiana that do have online tax sales. There is a 10-15% penalty paid on the certificate amount depending on when the lien is redeemed and 10% interest per year is paid on the premium amount and all subsequent tax payments. Not all of these tax sales are the regular tax lien sales, some of them are the county commissioner's tax certificate sales. These are the sales of the liens that did not sell in the regular tax lien sale. What's good about the commissioner's sales is that the amount of the lien is sometimes reduced and the redemption period is also reduced to only 120 days instead of 1 year.

Arizona
Arizona is one of the most popular states for online tax sales, although last I checked, only 6 of the 15 Arizona have their tax sales online. The default interest rate in Arizona is 16% and the interest rate is bid down at the tax sale. You will need to register in advance of the tax sale and submit a deposit in order to bid in any of these online auctions. Some of the Arizona counties also force you to pay the subsequent taxes - if you don't pay them they will sell your lien in the following year's tax sale.

Colorado
The state of Colorado also has a few counties that have online tax sales, premium is paid for liens in Colorado and the interest rate is only 1% above prime. Colorado tax sales are in November of each year and the interest rate is determined each September in advance of the tax sale. For the last three years it's been only 10%.Keep in mind that any premium paid for tax liens in Colorado will effectively reduce the interest rate received on the tax lien when it redeems. However when interest rates are low - as they are now, investors are reluctant to pay large premiums.

Other States With Online Tax Sales

In the last couple of years the states of Louisiana and Nebraska have also had counties with online tax lien sales. Both of these states have a bidding system that is not in the best interest of the investor. In these states it is the ownership interest of the property - should the lien not redeem, that is bid down. It is simply not a enough of an incentive for the owner of the property to redeem the lien if the investor will only own a small piece of the property, so I don't consider these states to be among the best states for tax lien investing.

In New Jersey, just like all of the New England states, tax sales are conducted by the municipalities - not the counties. So there are more sales (over 500 annually) in New Jersey then in some other states. But most of these tax sales are very small - some of them with only a hand full of liens sold to investors.  

New Jersey is not listed among the 5 top states to invest in tax liens online for three reasons. 

First, at this time only two New Jersey municipalities have online tax sales. And while the larger cities my follow their lead in the future, most of towns will not have online tax sales any time soon.

Secondly, the bidding procedure in New Jersey is a little more complicated than in other states. The interest rate is bid down, frequently to 0%, and then premium can be paid for tax liens. The institutional buyers do this because once they have the lien, they can pay any current or future taxes when they become delinquent and get the maximum interest rate (18%) on these payments. So they are paying premium and getting no interest on the lien amount for the right to receive 18% on any future taxes that they pay. The problem with this for the individual investor is that if the liens redeems in a short period of time, you may not get any of the subsequent tax payments.

And thirdly, bidders need to have at least $10,000 in order to bid at these auctions. Even though you only need to place a deposit of $1,000 in order to bid at the tax sale, the online auction company considers that this deposit is 10% of your budget. So you need to have at least $10,000 in your account to make payment for successful bids.