Foreclosing on a Tax Lien - Doing it the right way

[Dylan Kerwin]

New to the forums and really interested in leveraging tax liens as a strategy in NJ and NY. I have one major drawback... I can't help but to feel like this strategy has the potential to be highly predatory. 

If I am not redeemed on my lien and have to foreclose, it could potentially net out great for me, but it would be off the backs of someone else's struggles. I get this is business, but is there any solution to limit this? Potentially working with the owner on a lease to own solution once I have control of the property or negotiating a subto deal if they are underwater on their financials. 

Is this even legally allowed to have this level of communication with the owners. 

[Adam Walter]

Quote from @Dylan Kerwin:

New to the forums and really interested in leveraging tax liens as a strategy in NJ and NY. I have one major drawback... I can't help but to feel like this strategy has the potential to be highly predatory. 

If I am not redeemed on my lien and have to foreclose, it could potentially net out great for me, but it would be off the backs of someone else's struggles. I get this is business, but is there any solution to limit this? Potentially working with the owner on a lease to own solution once I have control of the property or negotiating a subto deal if they are underwater on their financials. 

Is this even legally allowed to have this level of communication with the owners. 

Hi @Dylan Kerwin, Although I don't feel that it's predatory, I do undertand where you're coming from.  I purchase properties via foreclosures in Ohio and many times I will sell it back to the original owner on payments over time.  I've probably done this 30-40 times and so far only had to evict one person.   I'm sure tax liens are handled differently in Ohio (I can't buy the liens here), but the end result can be similiar.  Like you mentioned I set mine up as a lease with option to purchase and extend it out a number of years.  I went into this space with a mindset to look for win-win scenarios where I don't have to kick people out of their homes.  Feel free to reach out to me if you're interest in more detailed info.   

[John Underwood]

The government needs its property taxes. The investor provides this when the owner doesn't so that the government can provide essential services to its citizens.  

This is not predatory since the government is initiating the tax lien sale in the first place.

[Bruce Lynn]

I know what you mean....but I would argue In my area (Texas) most of the law firms and taxing authorities are very very very accommodating with people.  By the time it goes to foreclosure they've called and mailed a dozen times or more, offered payment plans, 3rd parties have offered payment plans, there has been a court proceeding, and often personal contact at the residence.  For whatever reason the owner has not responded to all those chances.  Even after the sale (we do tax deeds here, not liens) they still have the right to redeem.

Think about who gets that tax money....in our case most of it goes to schools, but some may go to city, county, or hospitals.  They need those funds.  Not fair for people not to pay them.

Having properties in the tax sale resolves that problem.  If there wasn't a remedy, maybe no one or low percentage of people would pay.   Also many of the homes are in disrepair, so getting them in the hands of investors who will improve the property or build on vacant lots increases the tax role, so more people win.

[Ned Carey]

@Dylan Kerwin One investor once told me, "If you are not willing to evict the last 2 weeks of December then you shouldn't be a landlord."  His point is that some businesses take some tough decisions and if you are not willing to do that then maybe it is not the right business for you.  

I have a soft heart and we bend over backwards for people who want to keep their property. Usually this leads to a "No good deed goes unpunished" scenario. What @Bruce Lynn said is true most properties that go to foreclosure judgement are people who have made no attempt to help themselves and often are outright scammers. That said you can work out deals to dismiss your judgement or work out payments over time. We do this but it is a pain in the rear, and often doesn't work out long run. 

[Mohammed Rahman]

Hey @Dylan Kerwin what you're doing isn't new at all. It's a sale-leaseback mechanism where you allow the current owners to lease the house back from you as soon as you purchase it. There are already a few large companies doing this and have been involved in a few lawsuits already. 

I'm not saying that to deter you, because as @Adam Walter mentioned it could be a win-win scenario for you and the homeowner. 

[John Underwood]

Quote from @Ned Carey:

@Dylan Kerwin One investor once told me, "If you are not willing to evict the last 2 weeks of December then you shouldn't be a landlord."  His point is that some businesses take some tough decisions and if you are not willing to do that then maybe it is not the right business for you.  

I have a soft heart and we bend over backwards for people who want to keep their property. Usually this leads to a "No good deed goes unpunished" scenario. What @Bruce Lynn said is true most properties that go to foreclosure judgement are people who have made no attempt to help themselves and often are outright scammers. That said you can work out deals to dismiss your judgement or work out payments over time. We do this but it is a pain in the rear, and often doesn't work out long run. 

 I am right there with you on being too soft. It usually does not end well for me.

[Lindsey Johnson]

Hey @Dylan Kerwin ,

As other indicated, this strategy is not new. Of course there is a way to be predatory about it, but there is always a way to provide genuine value to people in this situation. One way is a lease option. I would advise 2 years or more for the buyer to exercise the option, however. This gives them enough time to save and fix their credit. Otherwise, in the case of a 6 month lease option, it may be considered predatory as they would not be in much of a different financial situation. Tax liens are a great niche, though, and I think you can truly help people and make some money too! Check out Allan Susoeff of askalhow - he is a great resource on this topic. He has a 6 free 6 part course on how to do this strategy well. Good luck! 

[John Underwood]

Quote from @Lindsey Johnson:

Hey @Dylan Kerwin ,

As other indicated, this strategy is not new. Of course there is a way to be predatory about it, but there is always a way to provide genuine value to people in this situation. One way is a lease option. I would advise 2 years or more for the buyer to exercise the option, however. This gives them enough time to save and fix their credit. Otherwise, in the case of a 6 month lease option, it may be considered predatory as they would not be in much of a different financial situation. Tax liens are a great niche, though, and I think you can truly help people and make some money too! Check out Allan Susoeff of askalhow - he is a great resource on this topic. He has a 6 free 6 part course on how to do this strategy well. Good luck! 

 I have also provided loans to people to keep them from losing their house.

I usually just make 2 points and interest for a 12 to 24 month loan to cover the back taxes. Sometimes they ask if I want to but the house and I get a deal.

One time they didn't pay me back and I file my deed to the house that was collateral and collect the tax sale overage a couple years later. This is how I paid for my 2017 Convertible corvette.

[Lindsey Johnson]

@John Underwood Lets go!! Love to see it.

[Travis Felchlia]

Quote from @John Underwood:

The government needs its property taxes. The investor provides this when the owner doesn't so that the government can provide essential services to its citizens.  

This is not predatory since the government is initiating the tax lien sale in the first place.

In my understanding, you’re helping the homeowner out by paying these taxes. It’s a win win for you and the homeowner because you get a great yield on your money and they have their taxes paid for the time being.