Note/Tax lien purchase: Where am I going wrong?

25 Replies

So I have been researching the idea of Tax Lien and notes and for ease of gathering data I have been using Miami's city run website that lists all the past due tax amounts. I am just trying to feel out how the process works and I came across the following situation and as the old saying goes (if its too good to be true...) this looks too good/easy. Where am I going wrong in my thought process here?

https://bidmiamidade.com/main

Account #:

3122020444010

Listed as Oceanview condo: 19390 COLLINS AVE UNIT: CU-O Sunny Isles Beach, FL 33160-2200

https://www.miamidade.gov/propertysearch/#/?folio=...

The lien is listed at $21.94. Yet 1/1 condos at around 1k Sqft are going for $240,000.00 (https://www.redfin.com/FL/Sunny-Isles-Beach/19390-Collins-Ave-33160/unit-1504/home/43318747).

So why would I not grab that lien, drop $200,000k into the condo, and turn around and sell if for $240,000 and make $40,000k?

There has to be some sort of huge obstacle preventing people from doing this that I am not seeing.

Help educate a newbie Note/Lien learner by pointing out what I am missing.

Thanks!

You can buy tax liens however that doesn't mean you own the property... once there are multiple consecutive years of taxes not being paid then the property will goto tax-deed auction in which anyone can place a bid.


Buying a tax certificate in FL gives you no ownership, and no advantage over anyone else in buying the property later.

@Wayne Brooks So what is the advantage for someone to buy the tax certificate in FL?

@Elvis Vasquez Then you are saying if I buy the tax lien I have no right to the property? Why would they (the government) even offer to sell them if no one is going to buy them? It sounds like someone would have to wait for the property to go to tax-deed auction? Where can someone find information about that process or a list of properties that are up for auction?

Tax certificates are sold around the first week of June each year...all you are doing is loaning money to the county, for a low rate as the rate gets bid down, and it can be an expensive process to get paid off sometimes.

Tax deed auctions occur on the county clerk of court site, on the auction calendar along with the mtg foreclosures.

@Wayne Brooks , So I purchase $100 tax certificate (Also known as a Tax lien I am guessing?) at 8%. How do I go about getting my money back? I am assuming I am paid off if the property owner gets current on their taxes or if the city forecloses on the property? If I made the right assumptions, what would happen if the property if foreclosed on and no one buys it?

Originally posted by @Michael Randle :

@Wayne Brooks So what is the advantage for someone to buy the tax certificate in FL?

@Elvis Vasquez Then you are saying if I buy the tax lien I have no right to the property? Why would they (the government) even offer to sell them if no one is going to buy them? It sounds like someone would have to wait for the property to go to tax-deed auction? Where can someone find information about that process or a list of properties that are up for auction?

 Tax liens just give you a percentage back % which usually ends in bid down wars (@Wanye knows more about it but the general gist is other people can bid down  against you).

Its after a few years of consecutive missed taxes does the property goto Tax-deed sale with the county.

If you want to participate in tax-deed auctions you need a bit of money (40k to start possibly more now - and you'll need a lawyer if you intend on selling the property - have to complete the quiet title process).
 

@Elvis Vasquez and @Wayne Brooks , Thank you both for the input. At this point I am just trying to get my head around the complicated concepts and like math, I learn the process by looking at real life examples. Am I right to assume the website to look at in order to view forclosures/tax deeds that would allow a person to own the property outright if successful in bidding is (https://www.miamidade.realforeclose.com)?

I am still confused as to who or what guarantees your % of return on Tax liens?

Yep.

Originally posted by @Michael Randle :

@Elvis Vasquez and @Wayne Brooks , Thank you both for the input. At this point I am just trying to get my head around the complicated concepts and like math, I learn the process by looking at real life examples. Am I right to assume the website to look at in order to view forclosures/tax deeds that would allow a person to own the property outright if successful in bidding is (https://www.miamidade.realforeclose.com)?

I am still confused as to who or what guarantees your % of return on Tax liens?

 The government once the property sells you get your $$$ back (now I'm curious what happens to the tax lien if the owner declares bankruptcy?)

I believe Florida is similar to a few states I invest in.  With relation to tax liens, I currently have a couple in Arizona.

I purchased the liens after the auction (some juridictions have leftover liens that if they aren't won at auction, you can purchase outright - earning the highest level of interest available...18%).  A few years ago, I purchased multiple liens against the same property owner, as well as a couple of others.


Last year was the first year I was eligible to redeem those liens (after the 3 year statutory period).  I contacted an attorney and we started the foreclosure process on three liens.  One was redeemed...I received 18% interest less the processing fee and my lawyer's fee for the noticing process.  I lost money.  The other two went through the full foreclosure process - I was able to buy two building lots for about $3,300.  Similar lots in the area are currently available for $5,500.  The two I acquired were previously sold for $9,500 in 2006 and for $17,500 in 2005.  The 2008 recession hit these lots hard.  Annual property taxes are about $65 per year so they are worth holding on to until they sell.  The two lots were owned by the same person who after foreclosure, got his back end in gear and paid the liens off on the rest of his properties - so without noticing, I got 18% interest (less the service fee) on three other lots plus my principle back.

This year, we sent out noticing on one lot.  No response.  The lawyer was paid his retainer to start the foreclosure process.  If all goes as it did last year, I will have possession by the end of December.

Is it worth it?  So far, so good.  Just don't invest in areas where they bid down the interest rate to 2% (or even less).  It's not worth your time - you can get that in bank interest.

@Account Closed Interesting process, thanks for sharing. Seems like you need your ducks in a row and understand the process well to make things happen.

@Michael Randle

I am still confused as to who or what guarantees your % of return on Tax liens?

No one guarantees you investment! That tax liens are guaranteed is a flat out lie by people promoting tax liens. Your only safeguard is the value of the property which is security for your investment. If the property owner does not pay, the recourse is for a tax lien holder to foreclose.  If the property does not sell for enough to cover the taxes you can lose money.  In FL there can be multiple tax lien holders for multiple years which can complicate that calculation. 

Talk to others for details. I am not a FL expert but there are some who are on the site.

To collect on a certificate that had not been paid off, before 7 years when it expires, you have to apply to the tax collector to send the property to a tax deed auction. To do this You have to pay off all the other outstanding certificates, plus the county’s 18% interest, plus some some fees. Then, the minimum bid at auction is the amount you already have out of pocket. If no one bids that high you get the property, but this means you paid more than anyone was willing to, do what does that tell you.....
If someone buys it, you get your money back. You can easily have to spend 10 times what you paid for the original certificate to go thru this process, for just the interest you were supposed to earn on your certificate. Sounds great, right?

@Wayne Brooks You make it sound even worse than I already thought it was.  Why do people invest in FL tax liens?

@Ned Carey It never made sense to me.  Most go for 2-5% I think. The only attraction I can see, the lien holder is guaranteed a total  minimum interest of 5%, ie. if they bid the rate down to 2%, and the lien gets paid off in a few months, the certificate holder still gets a minimum of 5%.  When this happens it makes sense, but this is not the norm.

Account Closed In Florida you can start the foreclosure process after 2 years. But now what if the property already has more than 2 delinquent years. For example I have purchased a tax lien in this round, and there are 3 years of non-redeemed tax liens for the same property. Can I be the one to start the foreclosure process, since it is over 2 years, even though I have only held the lien for a few days now?

Originally posted by @Account Closed :

@Ed E. In Florida you can start the foreclosure process after 2 years. But now what if the property already has more than 2 delinquent years. For example I have purchased a tax lien in this round, and there are 3 years of non-redeemed tax liens for the same property. Can I be the one to start the foreclosure process, since it is over 2 years, even though I have only held the lien for a few days now?

 I would talk with an attorney.  My experience is it depends on where you are on the list...and if you try to foreclose, you need to send notice to all parties involved.  If there are folks in front of you, they may not have interest in taking possession and have more interested in getting their money from the jurisdiction (which you will pay to redeem the liens if you plan on taking possession).

Originally posted by @Wayne Brooks :

@Ned Carey It never made sense to me.  Most go for 2-5% I think. The only attraction I can see, the lien holder is guaranteed a total  minimum interest of 5%, ie. if they bid the rate down to 2%, and the lien gets paid off in a few months, the certificate holder still gets a minimum of 5%.  When this happens it makes sense, but this is not the norm.

this is old news but I think read an article I forbes about the FLA tax liens and that insurance companies etc were happy with 5% so they bid everything down.. and placed large blocks of what they felt was secure money at better than CD rates.. ?? 

@Jay Hinrichs   As you can tell, I've never had any interest in our tax certificate sales.  But, since you mentioned it, and the annual sale was about a week ago, I looked up the results.....

Over 90% of the 18,000 certificates sold went for an interest of.....wait for it...... 0.25% 

A bit over 5% were no bid, and went to the county (you know those someone can buy from the county later).

The remaining less than 5% went from rates of about 4-13%.  Most of those were for certificates of less than $500.  (how much effort can you put in to hopefully make $25-$50/year?)  I'm guessing most of those 10-13% cases had two unknowledgable bidders, where the property was a loser and they shouldn't have bid on them.....you know like when you get two clueless bidders bidding against each other at an hoa auction not knowing they just inherited a mtg.

Now, for those bidding 0.25%, they are entitled to a minimum of 5% over the life of the certificate, whether it is redeemd in 1 year, or 7 years when the expire worthless....that seems to be the prevalent bidding theory I guess.

The vast majority of these range from $1,000-$5,000.  

I'm guessing you can see why they don't interest me.

@Account Closed   As a certificate holder, you have to wait two years from the day You buy your certificate, in order to send it to a tax deed auction.  If you read my post above, you see that You don't foreclose on it as in other jurisdictions, and you pay off All the other certificates to start the process, with No advantage in eventually owning the property.

Originally posted by @Wayne Brooks :

@Jay Hinrichs  As you can tell, I've never had any interest in our tax certificate sales.  But, since you mentioned it, and the annual sale was about a week ago, I looked up the results.....

Over 90% of the 18,000 certificates sold went for an interest of.....wait for it...... 0.25% 

A bit over 5% were no bid, and went to the county (you know those someone can buy from the county later).

The remaining less than 5% went from rates of about 4-13%.  Most of those were for certificates of less than $500.  (how much effort can you put in to hopefully make $25-$50/year?)  I'm guessing most of those 10-13% cases had two unknowledgable bidders, where the property was a loser and they shouldn't have bid on them.....you know like when you get two clueless bidders bidding against each other at an hoa auction not knowing they just inherited a mtg.

Now, for those bidding 0.25%, they are entitled to a minimum of 5% over the life of the certificate, whether it is redeemd in 1 year, or 7 years when the expire worthless....that seems to be the prevalent bidding theory I guess.

The vast majority of these range from $1,000-$5,000.  

I'm guessing you can see why they don't interest me.

I grew up in it my dad was buying tax sales in CA in the 60s... but those were tax deeds. you buy it you get a deed 30 days later you record it you own it and it wipes out all liens expect the ad valorum taxs and IRS that has a redemption right.  but its 99% bare land.. rare is it a house that goes.. but it does happen we bought a few over the years but not many..  

I'm curious as to why people buy so many liens at 0.25%.... makes no sense unless you have massive reserves to wait 3 years.... 

Is it just ignorance?

@Wayne Brooks so then theoretically you could never lose your home or pay taxes if a different person buys your lien every year. That doesn’t seem right either. I did work for the government for years obviously. So I know logic doesn’t always prevail there. 

@Account Closed   No....any certificate holder can send it to a tax deed auction 2 years after they buy the certificate.

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