Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
Would love some advice from the experts here...
Someone approached me with an offer to sell me a property -- he doesn't actually own the property yet -- he purchased the tax lien and has the intention of foreclosing (this is in Maryland, btw). The deal is reasonable and I'd be interested in purchasing the property secured by the lien, and he has offered two scenarios:
1. We agree to a purchase price and I'll pay him a few thousand dollars upfront to cover his costs to foreclose, then once he successfully forecloses and takes title, I pay the remainder of the purchase price and take title to the property.
2. We agree to a purchase price, I pay him something upfront, get the lien and it's my responsibility to foreclose, after which I pay the difference in the purchase price. We haven't determined the upfront amount, but I assume he wants as much as possible and I just want to make sure I don't lose any money.
Now, I'm no expert, but I see potential issues with both scenarios...specifically if neither of us is able to actually take title after the foreclosure process.
So, I'm looking for suggestions on how to handle this in an equitable fashion such that neither side gets screwed should something atypical happen (like a redemption or purchase at auction by a third party).
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y
Why don't you dig up the owner who didn't pay taxes on the property, maybe there was a reason he didn't pay, like the lack of money, make him an offer, redeem the tax lien and move on? Might give your tax lien guy something for his efforts too. I'd try that first. :)
Denver, CO · Member since 2014 · 18 posts · 7 votes
12y
Although I haven't invested in tax liens, one thing that I believe about Maryland's system is that when someone bids on a tax lien, he bids the price he is willing to pay for the property if it goes to foreclosure. So just be aware that even if the tax lien was for $5k, the person who owns the tax lien might have bid $60k and will need to come up with that to get title to the property.
Residential Real Estate Agent · Broomfield, CO · Member since 2013 · 390 posts · 125 votes
12y
@J Scott I don't have any experience with tax liens, but I think they key (as with all agreements like this) is to think of all the scenarios in which something goes wrong, and spell out in your (written) contract what happens in those scenarios. Then put something in the agreement that addresses what happens when something unforeseen happens. Binding arbitration is a great way to keep costs down and keep you out of Court. Have the agreement drafted by a competent Maryland attorney.
Investor · Atlanta, GA · Member since 2013 · 212 posts · 107 votes
12y
What is the face value of the liens that he purchased? Since he doesn't have title, and can't guarantee he will ever get it, I wouldn't advance him much (if anything) more than face value. The cost of foreclosure was part of the deal when he bought the lien. It shouldn't be shifted to you up front. Now, I can see entering into a contract at whatever price, contingent on him being able to convey title, where you give him some refundable "earnest money" which he has permission to use toward his foreclosure costs (this is your scenario #1).
Scenario #2 seems less workable to me because the assignment just makes a cloudy title situation worse and would probably result in a massive mess if the owner redeems.
But in either case, your contract should clearly spell out what happens in the redemption/3rd party buyer situation because what you refer to as "atypical" is actually the norm - well more than 90% of tax liens get redeemed before foreclosure. At least in Georgia there is a healthy market for tax deeds on the courthouse steps (in essence the same thing as a foreclosed lien), and I imagine the same is true in Maryland, such that the risk of a third-party buying the property is also material.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y
Why don't you dig up the owner who didn't pay taxes on the property, maybe there was a reason he didn't pay, like the lack of money, make him an offer, redeem the tax lien and move on? Might give your tax lien guy something for his efforts too. I'd try that first. :)
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
12y
Thanks all...great feedback and I appreciate it!
@Bill Gulley - Apparently I've already voted for you the max today... :)
I'm hoping Ned will respond...I was planning to shoot him a text message, but figured if he responded here, it would benefit everyone else as well... :)
Ellicott City, MD · Member since 2013 · 46 posts · 5 votes
12y
What county is the tax lien from? Do you know where is it in the redemption period timeline? In MD redemption period usually lasts 6 months after the County's Tax Sale Date and the lien holder has 2 years from the sale to initiate a foreclosure proceeding (do your own due diligence with this and do not take my word for it)!
All of that information could have an effect on how much you are willing to pay for either scenario. I love that guy's initiative and savvy though.
Lien Investor · San Diego, CA · Member since 2014 · 25 posts · 13 votes
12y
Maryland is a good state for tax lien certificate sales because the interest rate is 6% to 24%, but each county and/or municipality handles sales differently, which can make it a pain to track what is going on.
VERY IMPORTANT: The redemption period is six months to two years, again because counties and municipalities have different rules.
If you can post the County I may be able to help you further or at least tell you the redemption period.
Maryland tax lien auctions, each county has its own rules governing sales, interest rates and redemption period.
Maryland does not conduct formalized tax deed sales, which is why you or the other party will have to handle the foreclosure.
The holder of a certificate of sale may at any time after the expiration of six months from the date of sale, file a complaint in the Circuit Court to foreclose all rights of redemption of the property to which such certificate relates. If such action is not taken within a two-year period subsequent to sale, the certificate is null and void (Section 14-833).
I would first check the date on the lien, make sure that it is past the 6 month period. Then I would conduct a lien search, find out the current market value of the property (of course) and then do some studying on the foreclosure process.
I am not sure of this County but the foreclosure process can be tricky. I have done many in California back in my mortgage days and I had a system but it was still a pain sometimes.
If the other party has done this before (and can prove it) then you may be in a good investment.
@Ned Carey can definitely give you more specifics with his wealth of expertise. No doubt he is probably in hibernation sleeping now as he will literally drive thousands of properties once that Baltimore tax sheet comes out in mid-March!
I like @Bill Gulley suggestion. One thing you have openly stated is that you want to (understandably) control as much about any RE deal as you possibly can. Bill's suggestion gives you the most control.
Real Estate Investor · Baltimore, MD · Member since 2014 · 21 posts · 3 votes
12y
I believe there's an upcoming tax lien auction in Baltimore in May. I think the listings will be available in March. If your interested in investing in tax lien certificates, I'd try that route instead of buying third party. Sounds too complicated and risky.
Specialist · Las Vegas, NV · Member since 2013 · 639 posts · 176 votes
12y
@J. Scott, I'd go along with @Raquel Thomas and I'd take the idea a step further; A guy like you would have no problem handling tax liens and deeds once you get your head around the stuff, IMO. It's a natural step for you and you're in pole position to do it. Plenty of people here will support a move like this and keep you on the straight and narrow.
Yeah and think of all the great postings we'd get!
Me, as far as complex(!) deals like this go, I just don't do them, I'm not smart enough and also because I'm part of the T.V. generation; my attention span runs the length of a t.v. commercial, lol.
Where's that Ned Carey? This sounds like he can offer some suggestions.
Thanks for the mentions everyone. Well I didn't respond earlier because I was out checking on several properties I have foreclosed on for taxes today.
@J Scott If an owner redeems (Pays off) the tax lien he has to reimburse you for legal fees. However any premium you pay the current tax lien holder is at risk.
Going directly to the owner is one strategy. I have done that often.
Important issues here.
Is this a 2013 lien or a 2012 lien? - any older and it has expired unless a foreclosure has started.
What was the bid amount? Is there a surplus due
Was a high bid premium paid?
How much are subsequent taxes
Is there a mortgage on the property? - they may pay off the lien to protect their interest.
There are a number of issues so I will contact you directly.
I'm buying a Tax Deed in GA for a vacant, buildable lot. Just curious, what did you do @J Scott ? It may influence my exit strategy.
I made two offers to the seller:
1. He could assign the lien to me at face value plus the interest he'd earn if it were redeemed. I'd then take it to foreclosure. If the foreclosure went through, I'd pay him the rest of his money; if the house were redeemed, I'd be made whole but not see any profit and he'd have his interest (and the attorney would be paid from the redemption).
2. I would pay for my attorney to foreclose with a contract in place that said I'd purchase the property upon foreclosure. If there was a redemption, the attorney costs would go right to the attorney and he'd refund me to make me whole.
Ultimately, the lien seller has been very secretive about what he paid for the lien and other facts. So, it appears this deal isn't going to happen.
But thanks to everyone for the great information!!!
... Ultimately, the lien seller has been very secretive about what he paid for the lien and other facts. So, it appears this deal isn't going to happen.
...
Wouldn't the price paid be part of the public record, that you could look up or get by making a visit to the dept that sold that lien?
... Ultimately, the lien seller has been very secretive about what he paid for the lien and other facts. So, it appears this deal isn't going to happen.
...
Wouldn't the price paid be part of the public record, that you could look up or get by making a visit to the dept that sold that lien?
Probably...but if the seller isn't going to be cooperative, I'm happy to let the deal go...
This was a very fascinating thread. J, would you be interested in setting this type of deal up in the future?
Certainly, if the seller is easy to work with...
In fact, we are closing the purchase a former tax lien property from a BP member next week -- it was a tax lien that he foreclosed upon and is selling with clear title.
Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
12y
J Scott - your investment in time, effort and energy may still be rewarded.
You will no doubt be ready for the next (similar) opportunity, prepared with the right documentation and methods of working this type deal.
In future, you'll be able to take a step back, not have to be as reactive to someone who tenders such an opportunity and be more confident about negotiation. And, it will like go easier because you now have a better sense of how to control these type deals, manage your risk and employ tactics that make sense!