Can I get some help with some with the major differences between a tax lien and a note? Somethings like; cost to purchase, where and how to, basic differences? I have a general knowledge of them but not sure how to get start and witch one might would be better. I know this is open but that's were I'm at. Is the main reason to get into tax liens to foreclose and get the property?
Hi John, I'm now into my 2nd note but one of the first things I looked into in real estate was tax liens.
Here's how I look at it:
These can be obtained at auction. Whether online or in person depends on the state/county/township. For instance, a state might offer 16% return on a tax lien which you can then buy, but you may have to bid that down depending on the state to obtain the rights to that lien. It gives you the opportunity to foreclose if no one ever pays off the lien and the interest owed, though take note, if there's also a note on the property it's likely whoever holds it would pay it off to secure their right to foreclose unless there's some mitigating circumstances (maybe the property isn't worth going after).
Pros: Highest in priority. If an owner stops paying on their, property tax liens are owed generally above all else including mortgages/deeds of trust and the notes they are tied to. Risk is low as (to the best of my knowledge) you either should almost always either get your money back or the property.
Cons: It could take several years to see a return and if you want to secure your right to foreclose you may have to pay multiple years of liens.
Notes are tied to the mortgage/deed of trust on the property and put in position to foreclose should the borrower stop paying. You would be behind tax liens and some other liens as well. For instance, you could buy a 2nd lien (e.g. a HELOC) and be behind a 1st lien or you could buy a 1st lien position and be behind a tax lien. It gives you the ability to collect the payments dictated in the note or renegotiate the terms, foreclose, etc.
Pros: More options and exit strategies than a tax lien and more flexibility. Can see a return sooner.
Cons: Riskier than a tax lien. May never see a return and have to adhere to a number of laws determined by the particular state, obtain servicing, etc.
That's a veeeeery broad rundown and there's a lot more to know on both, but hopefully it helps!
Thank you @Odie Ayaga for the info and the links. Padcast 273 is what got me more exited about the notes and liens. I am interested in the 1st, 2nd lien strategies you mentioned. Could you go a little deeper into that? Been diving deeper in BP to get a better under standing of all this. Going to get the book too.
Thanks again for the info.
1st and 2nd liens aren't strategies so much as types of liens. By definition, a 2nd lien is junior to a 1st. Some people specialize in purchasing 2nds, some specialize in 1sts, some buy both. There are different risks and strategies involved in each arena. As you journey into the world of notes the differences between them and the way to handle them will become more obvious.
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