The Tax Foreclosure Process And How It Differs From The Mortgage Foreclosure Process – Tax Liens Sales

31 October, 2010

As home values keep dropping yet property taxes keep increasing, tax foreclosure sales will become more celebrated. Some homeowners experiencing double-digit percentage increases in their yearly tax burden, even as they are working fewer hours or taking pay cuts will inevitably come to realize that they can no longer afford to keep up with monthly housing costs that never go down.

Thus, tax sales will become more common throughout the country, especially in areas where the local government grew the most out of proportion to the surrounding community. The tax foreclosure and sale process, while similar to a regular foreclosure, also has a number of differences that make it both easier and more difficult to keep the house. Borrowers should be aware of how their local government can take their home.

Once a tax bill becomes due and is unpaid, it becomes a lien on the homeowner’s property. Typically, the lien is imposed on the first day of the year after the property tax is assessed by the county. Under statutes in many states, tax liens are given priority status over any other lien, including first mortgages. In order to protect their first mortgage lien, lenders require that property tax be paid through an escrow account.

Sometimes it is the lender or servicing company itself that drives the property to a tax foreclosure sale. Whether due to incompetence or malice, tax payments are sometimes lost, applied to the wrong account, or simply held in the escrow fable and never paid to the county. Other times, it is the county itself that misapplied the payment or received the tax but did not credit it to the homeowner’s account.

This makes the entire process more complicated, as there may be several extra parties involved in a tax foreclosure than in a regular foreclosure due to the default of a mortgage contract. The borrowers pay into an escrow account administered by the servicing company. The servicing company holds onto these funds until the tax is due, at which time it forwards the money to pay the bill to the taxing authority. It is then the taxing authority’s job to apply the payment. With all of the players keen, mistakes are inevitable.

Also, if a home is in foreclosure due to nonpayment of the mortgage, and there is an escrow legend that is unpaid, the lender will most often pay the property taxes in order to prevent a lien from being placed on the house. But the amounts that the lender pays to keep the taxes up to date will most definitely be charged to the borrowers. They will be counted as part of the arrears if the homeowners with to cure the default.

Tax sales, which will be examined in a future article, also differ from the normal foreclosure process in that the bidder at auction usually only needs to pay the delinquent taxes to take over the property. Instead of paying close to the fair market value or bidding through a competitive auction, homes can be sold for as little as a few thousand dollars in unpaid taxes.

Buyers of tax foreclosures may also have to wait great longer to evict the former owners than if the house was foreclosed due to default on a mortgage. Local or state statutes may give homeowners up to a year to come up with the money to pay the taxes plus any costs and penalties and retain their home. The bidders will have to surrender their claim to the property and try again on another house.

Tax foreclosure issues will also usually be resolved outside of the court first. If the property owners want to dispute the assessment, how considerable they owe, or any payment amounts, they will most likely have to go through an administrative process, filing appeals or other paperwork with the county. The courts may be the final venue to decide any disputes, but homeowners may not be able to take their case into court right away. They have to go through the correct bureaucratic channels first, which makes defending the tax sale more difficult.

Tax sales, while not as prevalent as regular foreclosure auctions, may become a larger issue for homeowners as falling property values make it less worthwhile to keep paying on a home where local taxes keep increasing. In the end, counties may demolish up with nothing more than neighborhoods of abandoned homes generating no tax revenue at all and actually costing the community in terms of upkeep and further lowered property values.

Investors Creating Wealth From Tax Liens – Irs Tax Liens

31 October, 2010

Property tax liens are touted as a lucrative investment which can enable the average person to make wealth. Skeptical consumers are leery of those promises to get something for nothing. On television there are info-commercials telling people you can beget a fortune by purchasing tax liens, where the investor can literally pick up an improved real estate for a few hundred dollars. Making money with tax liens isn’t a con, but it isn’t as rosy as some promoters claim. Yet, it can be as lucrative.

The first question: what is a tax lien? Position and local governments need tax money to operate. Much of this money comes in the blueprint of property tax. But, when property owners fail or delay in paying their taxes, there are detached bills to pay. Tax liens are a diagram to keep the government running.

If a property owner fails to pay the tax bill on time, the government offers a tax lien on the property to investors. An investor pays the past due taxes. The government promises to repay the taxes, plus interest. Interest rates vary from state to state, yet they are often considered higher than rates on other investments, and can exceed 16%. It isn’t the government who pays abet the loan and the interest. It is the property owner, when the bill is finally repaid.

Should two or more investors want to purchase the same tax lien, they can stammer against each other, offering to accept less than the interest rate. If an investor agrees to take 14% instead of 16% interest, the government then gets to keep the additional 2%.

Info commercials focus on the investor gaining ownership of the property. Generally that is not the case. Property owners will normally pay the tax, and if the property is mortgaged, the lender will usually pay the tax. But, investors are happy earning high interest on their money. If the investor is savvy with the tax liens purchased, it is a fairly safe investment with high returns.

If the property tax is not paid off within the time frame specified by the space, then there is a process investors go through to obtain ownership of the property. And, for some investors, this can be a lucrative windfall.

But, what are the pitfalls? There are circumstances when the property is not worth owning. While most debts on the trusty estate will not stay with the property, this is not the case if there is an IRS lien. If the property has environmental issues, the new owner will have a fresh burden.

I remember one story we were told in steady estate school. One tax lien investor decided to check out the property he’d obtained through a tax lien. When he arrived at the site, it was a vacant piece of property. But, his tax lien was not on the land. There was supposed to be a condo complex on the property, and he discovered his tax lien was for one of the units, that hadn’t yet been built. He, in essence, owned air space.

When first wading into the tax lien market it is advisable to stick with developed property, as opposed to vacant land. If you purchase a tax lien for useless swampland, it is a good bet the owner is letting the property go, and it isn’t land you want.

Commercial property is also something the novice investor may want to avoid, until gaining more experience. With commercial property comes the increased potential for environmental and IRS issues.

Procedures for tax liens, and interest rates paid, vary from state to state. County websites often post information about their tax lien programs, along with available liens. If you are a beginner, start close to home so you can easily check out the properties.

Real estate schools and colleges sometime offer courses on tax liens. Seminars, which encourage investors to purchase their program, are frequently held around the country. Before attending a seminar, and purchasing their program, do your due diligence, and investigate the company and feedback on the program they are offering.

Tax liens can be lucrative, and I know people who have made their fortunes this way. Yet, it requires a well informed investor, who does his or her homework.

How To Buy Tax Deed Properties A Step-by-step Guide – Tax Deed Sales

31 October, 2010

When someone doesn’t pay their property taxes, counties can auction the deed to the home. They do this so that they don’t incur a loss when people fail to pay property taxes. It’s by far the cheapest way to invest in real estate.

Depending on the state in which you work, the county is only trying to collect on the amount of taxes owed, which can sometimes be as shameful as $3,000. This presents a huge opportunity for cash investors and people with a lot of patience (since most counties only auction once each year).

With that in mind, here is a step-by-step guide on how to win advantage of this amazing opportunity. First I’ll give you the short version, followed by the long version. Each step will be described in detail, so don’t worry if the short version doesn’t execute sense.

Short version:

  1. Pick an area or county that you’d like to invest in (must be a tax-deed state).
  2. Visit that county treasurer’s Web site, or the finance department’s Web site and obtain a list of properties to be sold at the next tax-deed auction.
  3. Pick properties from the list that have potential.
  4. Research each property.
  5. Attend the auction & bid/buy.
  6. Fix, sell, rent or hold the house for yourself.

Long version:

Step 1:

In choosing an area, you first need to pick a state that’s a tax-deed area. Here is a list of tax-deed states:












New Mexico

New York










Step 2:

Visit the county treasurer’s website (or department of finance) and get a list of properties to be sold at the next auction. Here are some example websites that will give you information and links to either purchase or download their list of properties (I’ve included an example list if you’re unable to access these):

Sacramento, CA (free):

Los Angeles, CA:

Alameda, CA:

Albany, NY:

El Paso, TX:

Lane, OR:

Again, these are just a few examples. There are hundreds of counties available for the taking.

If you’re thinking of some place in particular, simply go to and type in “such & such county tax deed auction” and gaze for the official county website. Don’t go to anything with a “.com” attached to it or you’ll likely get sucked into buying some expensive package that gives the same information I’m giving you (all of which can be found online for free if you look long enough). While it’s valid to avoid most of the dot-com sites, some counties (especially the larger ones) do use a dot-com address instead of a dot “.gov”. El Paso, for example.

Your main objective in visiting the county website is to get a list of:

  • properties
  • auction procedures

Read over the procedures and get familiarized with them. Each county is a little different. Once you’ve obtained both, you’re ready to move on.

Step 3:

Picking properties that have potential all depends on what information the counties give you in their list. The first thing you should study at is the minimum bid. Find something that’s within your means and then peek at the column that has “structure” in it. This indicates that there’s a building of some kind on the property.

Then look at the address. If there’s a physical address with a street number, search for that address on Google maps or You can then see for yourself by zooming in or looking on Zillow to verify that there’s a building on the property.

If the address doesn’t have a street number, it’s an empty lot or field; in other words it’s useless.

By now you’ve probably narrowed down your list to 2 or 3 properties – which is OK – remember that this is only 1 county. If you spend a few hours each week and pick five or six counties, you’re looking at 12 decent leads on potentially cheap homes.

Be persistent in your research and don’t just focus on the county you live in. If you only focus on the county you live in you’re setting yourself up for failure.

Step 4:

Research. Boring and tiring,, yes, but it’s in your best interest to shroud all your bases, and it will take less time as you keep getting more experience.

You’ll basically want to research the property for the following:

  • Neighborhood values
  • Other liens or obligations
  • Title eligibility

For neighborhood values, the quickest diagram is to go to and type in the address. You can zoom in and contemplate at estimated home values based on various sales data available. Keep in mind that some data is estimated and some actual. The estimates may not be completely upright or reflect the good stamp of a given home.

You should also select a bird’s eye view of the property on Google Maps, and use the “Street View” feature to see an true 3-D image of the property from the street. A physical inspection of the property is highly recommended.

To research other liens or obligations, it’s best to start with what your state law requires. Some counties will give you a FAQ document. This can give you an idea of whether or not previous liens will remain on the property. In California, for example, the sale at a tax-deed auction conveys the title to the new owner free of all prior encumbrances, with the exception of a few (which are mentioned in the FAQ). If you can’t access the information online, simply call the county treasurer or department of finance.

After that you should go to either the County Court or the Recorder’s office to see if there are any special assessments or liens that won’t fall off the property as specified in the FAQ or information sheet. Another option is to have a local title company do a search on the property to study if it’s insurable. There may be issues that you can’t find on your own that would otherwise rule out a property from your list. Chances are if there has been a resident there within the last 6 months or so, it’s a safe bet, but don’t rely on that alone.

Now you have all the tools needed to inaugurate investing in tax deeds

Step 5:

Attend the auction & bid/buy. Each auction differs a little, so it’s best if you simply attend to inspect how the process works. The FAQ document should tell you everything you need to know before going in for that particular county. The most notable thing to remember is that you should never bid over what you can afford, or what might bring the price too high. Also remember that you’ll need the funds available as a cashier’s check shortly after you win. In some counties the bidder is allowed to leave the premises for an hour or so to obtain a cashier’s check from the bank, but again, this should be given in the FAQ or county procedures.

Step 6:

Fix, sell, rent, or keep the house for yourself. The property you buy will likely need some repair before selling. If you’re not estimable at home repairs you can hire a contractor to fix it up.

Good luck!