Baltimore tax lien - cost to foreclose

10 Replies

Hey BP, and particularly Baltimore folks - 

Another BP member, @Kenneth Futrell , and I are thinking of doing some work together on a tax lien that he purchased. We had a couple questions and were hoping some folks who have done this could help us out.

A couple of acknowledgments to start: 1) I understand that 99% of tax liens are redeemed, so this conversation might be a moot point; 2) I understand that tax lien investing has it's own risks and the returns are not what are often advertised in education seminars, videos, etc. I am treating this more of a low-risk intro into the potential of tax lien investing.

OK, now a couple questions:

1) For those that have gone through the entire foreclosure process on a tax lien, what is a range of the costs to go from tax lien certificate to quiet title? The things I would anticipate paying for would be my actual bid, the foreclosure process, the process to obtain quiet title, and any property taxes due during that time. What am I missing?

2) We understand that you can move up the timeline to foreclose if the property is vacant and we obtain a Substantial Repair Order. What is required of us in order to obtain a Substantial Repair Order?

Thanks all, appreciate it.

Brad

@Brad Cogswell   I disagree that in Baltimore city 99% of liens are redeemed. The number is less than 99%.   With the kind of properties that we target we actually foreclose on as many as 15%. But I get your point you are more likely to get a redemption check not a property.

We figure $2800 for foreclosure costs. That can vary $100-2000 either way unless an estate has to be opened.  If the owner is deceased and no estate has been opened then it could be an extra $1000 to open one.

Generally in MD you do not need a quiet title action if a good tax lien lawyer is used. You will have to be more particular about who will do the settlement at many title companies will not. However there are plenty that do. 

If the owner or bank redeems (pay off the tax liens) You get back your original investment, interest,  and any legal fees paid.

If no one pays the taxes and you complete a foreclosure, you have to pay any taxes and other municipal bills that come due after the original tax lien auction. So you will likely be responsible for 1-2  more years property taxes, 1-2 years worth of water bills, and 1-2 years for any violations or citations. Examples of the latter could be $250 to clean trash out of the yard, or $150 to cut the grass, or a fine for failing to register the property. The worse condition of the home especially if vacant the more these bills will likely ad up.

To get a substantial repair certificate, the lien should be listed as "vacant" on the tax sale list. This means it has a vacant  house notice. They are $100 each request. Try emailing [email protected] for more specific instruction. She handled them in the past that may have changed

Edited first paragraph for clarity

Medium crab1 copyNed Carey, Crab Properties LLC | http://baltimorerealestateinvestingblog.com/

@Ned Carey I appreciate the thoughtful response and the contact to get the substantial repair certificate. And the information around the quiet title is super helpful, I've been reading others who have spent another 4-5 months going for that action.

Based on the above and the research we have been doing, it sounds like this is something we will be moving forward with.

If I am buying the lien off of @Kenneth Futrell , who would we go to from the city in order to transfer/assign the lien certificate?

Brad, Quiet title actions seen to be  more necessary with tax deed rather than tax liens.  

My wild guess as to why; is that a tax lien is a civil case where the records are public and it is easy for a title company to see that the foreclosure was done properly.  In the case of a tax deed the municipality has done the legal work.  I sure wouldn't trust s government bureaucrat to handle all of the legal intricacies correctly. 

If you want the lien assigned to you, you need to go to the tax sale office. You could however make some type of joint venture agreement between you and it could stay in his name.

Medium crab1 copyNed Carey, Crab Properties LLC | http://baltimorerealestateinvestingblog.com/

@Brad Cogswell   Ned Carey is the one who can tell you the most about the Maryland tax liens.  Once your lien has been transferred to you and you start the foreclosure the lawyer that you use would be good to complete the title as a closing with insurance and then you would not need a quiet title.  The quiet title will take the tax lien to deed (which it would become once it had been foreclosed upon) off of the title and keep just your name which may make the title have greater marketability.  If you are concerned about title insurance it would be a good way to get that too.  Maybe it's not necessary but if it ups your profit then it could be a good idea.

1) Actual bid, high bid premium, any future taxes that come due, attorney fees, Circuit Court fees, process server fees, 40 year title search, certified mail fees, newspaper legal advertising fees to publicize, recordation tax, transfer tax (omit county portion as they're exempt). Attorney fees for the foreclosure action will be $2500-3000 then another $500-750 to prepare and record the deed for you after judgment is awarded.

1a) Where I acquired a property through tax sale I had added expenses because the owner was deceased and her heirs had never opened an estate. So another $1,500 to an attorney to represent her estate to collect the high bid premium and distribute it to its rightful owners. I am supposed to get that back when the estate receives the high bid premium, but I'm not holding my breath.

Perhaps @Ned Carey can speak to whether the title obtained this way would be insurable in a subsequent sale. The property I bought was for my rental portfolio and thus I haven't really investigated the hoops you have to jump through to get a title insurer to insure your sale if you're planning on flipping it.

@JR T. yes we have started opening estates in cases when none has been opened for a deceased owner.  The reason is we need to serve the estate. 

Yes if the estate is served we can get title insurance. Once again however You have to find a title company that will insure tax sales. 

Medium crab1 copyNed Carey, Crab Properties LLC | http://baltimorerealestateinvestingblog.com/

That's helpful @Ned Carey , thank you and good to know about the deed/lien differentiation. Also thank you @JR T. We are going to go through the process with this first one as a test. I'll let you all know how it goes/I'm sure you'll see some more questions as we have them.

Hello, everyone. I have been reading the post here and am very excited about the investment in tax liens with the intention of owning/foreclosing. It seems to me that it would be cost effected to learn and process the foreclosures through the courts without and attorney and more cost effective in the long run. I am a Do-It-Yourself-er and am not afraid of paper work and drives to the court house. I cannot see it being a good business strategy not learning this process. So, the question: What is the legal process of foreclosing a property in Baltimore city from a tax sale?

@RICO BARNES If an owner redeems your tax lien after you start foreclosure, they have to reimburse your legal fees. So the legal fees don't really cost you anything when a tax lien pays off. You cannot collect a legal fee for work you do on your own lien. It has to be an out of pocket expense to be reimbursed. 

If you complete a foreclosure on the lien, then there is no one to reimburse you legal expenses. Theoretically you would be saving money by doing it yourself. However the courts in Baltimore are very picky and often decline foreclosures and you have to know the law well enough to overcome their objections.  Trust me it will be more hassle and work then you expect. 

Most importantly you will never get title insurance if you do you own legal work. This means you won't be able to sell the property and neither you nor any buyer will be able to get financing for the property.

Medium crab1 copyNed Carey, Crab Properties LLC | http://baltimorerealestateinvestingblog.com/

Thanks @Ned Carey for the reply. It was informative.