BiggerPockets

From my understanding in my state after someone hasn't paid their taxes for 5 years the deed goes to a Judicial Sheriff's sale. At the sale the deed is sold to the highest bidder free and clear of everything. There is no earning interest like there is with a tax lien.

Take this with a grain of salt though because I have never actually invested in either of these so my info may not be 100% accurate. I am however very interested in attending a Judicial sheriff's sale when they have one in my county. They only occur here 1-2 times a year.

-Michael

Marko you're mixing up tax lien certificates with tax deeds. Tax lien certificates you get a certain rate of return like you said (16-24%). If the owner doesn't claim their property within the redemption period you apply for a deed on the property and then it is yours free and clear. Tax Deeds have no redemption period. When you purchase them you own them right away, and you don't make a return on them either than the return of when you sell the property.

The laws are different for each state and I'm no tax lien/deed expert but I know a bit. With tax liens you get the interest if the property is redeemed. With a tax deed you get the property only. You should talk to Thomas Senatore, he is the guy that wrote Wealth Information Academy's tax lien and tax deed course. Thomas knows everything there is to know about liens/deeds and has personally done a ton of deals. Here is the link to his profile.
http://www.biggerpockets.com/users/tjsmentor

Greetings Marko,

Here is a summary look:

Tax Lien/Certificates: Subject to Redemption Periods & Investor Earns Interest on Money Invested; Amount of Interest-Earned is determined by statutory guidelines (state-laws for Tax Sales).

Tax Deeds: Some Are Subject to a Redemption Period and Some are Not. Some Deeds Are Issued "Free & Clear" of all liens (e.g., State of California, Hawaii, Texas, Virginia, etc.)

Note: Remember, some are subject to a redemption period (e.g., Indiana, Georgia, etc.)

The state where you Invest will pretty much dictate whether or not you can earn interest on your $$ (which is ALMOST nationwide) or whether or not you can buy a property "Free & Clear" - in that state.

New York offers a number of sale-types as well. Please advise: which state is of particular interest to you?

Much Success As You Invest!

Greetings Marko,

Re: Response To Your Questions

First, I want to say thanks for your reply.

With respect to "Free and Clear" Properties in Texas, California, Virginia and Hawaii: I am pretty sure. The fact is that most people are only familiar with Tax Lien Certificate Sales in most states. For example, Texas has 254 Counties; however, almost every city, town, and ISDs-Independent School Districts are also able to conduct Tax Sales as well----that's in addition to the regularly scheduled Tax Sales at the county level--these properties are subject to a redemption period. However, there are usually Properties which are "struck-off" to each respective jurisdiction. Struck-off properties may include back taxes, but you can also negotiate in some cases with the county/city on the price (again- in some cases). The catch is: most will usually include the back-taxes on a property that you may be interested in bidding-on. Also, some counties hold a number of properties-in-trust (in which anybody can bid-on)----TOP SECRET INFO--- SMILE :).

Next, California Tax Sale Properties (58 Counties) are usually sold only after about 5-Years of being delinquent. The counties there only sell Tax Deeds---no redemption period "Free & Clear" (Bid4Assets.com) is the contractor for most sales in California. Virginia is very much like California except that the process may be slightly different depending on "who" is conducting the Tax Sale, but it is also a Tax Deed State (with no redemption period). VA has 95 counties and about 40 cities. Hawaii (5 Counties) is also a Tax Deed State. Finally, some states "bank" properties that are not sold at the initial Delinquent Tax Sale. Most remaining/left-over properties are vacant lands or properties that require rehab work. However, also keep in mind that in some counties there are too many properties and not enough bidders, so there could be deals still left on the table (so it's important to perform your due diligence on all properties of interest to you and/or your Investors---or consult an Attorney who is familiar with the process in that area).

Finally, you can purchase homes at "Tax Foreclosure Sales" or Judicial Tax Sales in selective states/cities. The main challenge is knowing the type of sale and the specific name of the Del. Tax Sale in that state/city, etc. (e.g., Tax Foreclosure, Tax Deed, Tax Title Sales, etc.).

Case & Point: Pennsylvania (67 Counties) conducts three types of Delinquent Tax Sales: Upset Sales (not free and clear), Judicial Sales (Free and Clear), and Private Tax Sales (free and clear repository sales).

Welcome To The World of Tax Sale Investing! Much Success As you Invest.

George with/a Smile :cool: :D

You will notice that even your reply you answered you own question to the mortgage liens.

Quote [ Pursuant to Section 3712 of the Revenue and Taxation Code, the tax deed conveys title to the purchaser free of all encumbrances of any kind existing before the sale, except: ] end quote

free of all encumbrances of any kind before the sale, except:

What follows, the exceptions, do not list a mortgage lien as an exception so they are cancelled as part of the sale.

Basically what is not cancelled is any lien from any governmental taxing authority.

As far as the IRS redeeming a property, this would only be done when their lein is considered in a junior position to the other liens. And when they are going to do this the property usually does not make it to the tax sales as they "conficate" the property and sell it themselves for what is owed.

I would think that they will just sit back, knowing that you can not sell that property or even get a loan against that property without satisfying their lien as it will be discovered in any title search that is done.

• Any lien for installments of taxes and special assessments, which installments will become payable upon the secured roll after the time of the sale.

• The lien for taxes or assessments or other rights of any taxing agency that does not consent to the sale under this chapter.

• Liens for special assessments levied upon the property conveyed which were, at the time of the sale, not included in the amount necessary to redeem the tax-defaulted property.

All the above that you noted in your original post are examples of governmental taxing authorities that have tax liens redcorded against the property in question.

If you are at a county tax sale and the property is within a city limits there may be city property taxes that are not included in the county tax sale. Then there may be taxes for trash collection if the trash company is set up as an governmental unit. Same thing with some utility companies.

The State can put a lien against the property for their taxes owed. Any lien from any governmental agency may remain and therefore the tax deed is considered "clouded" even if it is "free and clear". This is why it is often hard to get "title insurance" necessary to build anything or even sell the property for XXX number of years after purchasing the property.

That would be because the owners and lienholders have XXX amount of time to contest the tax sale as being valid for a number of reasons. The title search will identify those, but you still do not know if they have been properly contacted before the sale so that they have an opportunity to prevent the property from going into the sale in the first place.

That is just one example of many that can an do sometimes occur. For this reason many of the title serch comanies will do you a title search but will not guarantee that title search. And without that guarantee they usually will not issue title insurance.

The same thing is true for almost any type of quit claim deed. They want to see a warranty deed.

You could come to that conclusion. But if you have done your due diligence properly before the sale, the odds of something like that happening is on the rare side. When you flip to someone else you would give a warrenty deed to them which helps clean up the title for them. The price difference can be so great that many do take the risks involved.

Once you identify what can happen you know how to watch out for the properties that have those type of downfalls possible. At anyting something can jump up and bite you, but that is part of the risks. If you do it on an ongoing procedure than you will build a safety net into your plans. It has happened to all of us, but it is not as often as one might think. Just be prepared for its possibility. That is the real meaning of these posts of mine.

I believe it to be a great way to do things,overall.