Who has had experience buying tax liens?

[rudy45]

If I understand correctly, a third party can find properties for which taxes are owed, and on which liens have been placed by e.g. school district, city or county.

Do I understand that if that third party pays the taxes, it's possible that the third party can gain title? Has anyone had experience with this kind of investing? I understand the possibility of other liens that take precedence, e.g. IRS tax liens. How does one address this issue, and what other pitfalls are there?

How different is this from buying a foreclosure?

Thanks.

[oblomov]

Most professional tax lien investors stick with residential property. Generally raw land or industrial; property is the riskiest- there's almost always something wrong with the property.

If you want to be really safe, you can confine yourself to residential property with a mortgage (mortgage liability is usually public information)- mortgage liens are always junior to the tax lien. The bank will not let their mortgage lien get wiped out, and so it will redeem the tax lien plus whatever the statutory rate of return is. But in this case, the chance of the investor actually getting the deed is almost zero.

[Shyla]

We buy land at sheriff auctions that have been closed on for back taxes. Pretty inexpensive.

[rudy45]

In other words, you wait until the auction, then bid, rather than get involved with purchasing tax liens (?)

At what point do you do any kind of due diligence, e.g. checking for defects in title or whether there are any other liens? Do you do that before you submit a bid, or do you submit some sort of conditional bid, and make it conditional on not having any other title defects or other issues? Thanks.

[Shyla]

Actually, I show up on the courthouse steps, raise my hand for the bid amount. If I get it, I get it.

This is handled via the county. They attest that the ffproperty is lien/claim free. I have never run into a problem or have heard of anyone else that has. Many homes are sold this way also.

It is an interesting experience.

[carolinalivin]

Yeah, I think it's a safe investment if you can wait a few years for the pay off. I think those who do this full time, shop the counties, and now the system make money.

We don't do tax liens, but the two guys who trained us were doing very well. It was their full time job.

[IllumiNaughtyByNature]

Remeber, if you place a lien on a property and the owner learns of it, he can send a property tax bill to you for the % that you are liening. It is a good way to get someone to take a tax lien off your own house should one show up.

[Maceman]

I have a lot of experience in the factoring business. You really need to have a quick check with a lawyer just to understand the relevant statutes in your particular jurisdiction. (Shoudln't take more than a half hour or less to explain it).

But in general, a lien does not automatically transfer ownership of property to the lienholder. Instead, it simply evidences that the leinholder has a superior security interest to the asset against all other parties, so that it cannot be sold by the original owner.

Once the lienholder forecloses on the property under law or in accordance with the original owner's contract obligations, then the lienholder takes title and is free to sell the asset without the approval of the original owner.

But you can't just make an offer to pay the taxes and take the property from the owner unless the taxing authority has first foreclosed and taken title.