What if the delinquent owner files an bankruptcy after we bought his tax lien cert?!

3 Replies

Hi BP:

I have been reading all these tax lien certificate investments and some random thoughts just came up. 

What if the delinquent original owner files an bankruptcy, chapter 7 to be exact, after the lien is sold to investor? 

I understand the lien will not be forgiven even after his bankruptcy, but from what I have read, if the property is the primary residence of that delinquent owner, it can't be foreclosed on. And for a lot of folks went behind on their taxes and had to file bankruptcy, it's quite possible that there is no other asset they have left to redeem the lien either. 

So in that case, as investors holding his tax lien, is it like holding a blank IOU, where we know the lien, which means our money, will always be there attached to the property not removed, but quite possibly still we won't be able to get it back any time soon, even if it eventually comes back?

Anyone knows if my understanding is correct? Seems like tax deed is a much cleaner way to go in terms of investment, unfortunately NJ is tax lien state :(

Thanks for any advice.........

I had this happen to me. I contacted the tax collector and they told me that bankruptcy does not protect against not paying taxes. I received a deed to a house where the lady was in bankruptcy protection. I now owned the house. The bank didn't redeem it because of the bankruptcy so that worked out to my advantage. I ended up giving the lady some money to help her get started in an apartment. Cash for keys. At this point she was just tired of the fight. I had been getting letters from her lawyer contridicting what the tax collector told me. In the end I had her sign a Quit Claim deed when I gave her the move out money. She got to start over and put this behind her and I got a pretty decent house for pennies on the dollar. I know have it as a Section 8 house and the government pays most of the rent every month like clockwork.

Thanks John, wow so you got her out even it was her primary home. I heard it was untouchable. Guess it's all depend on the negotiation then. Good for you.

Btw why did you had to have her sign the quit claim? So basically you did not go through the official foreclosure, everything was done in private correct?

Btw, I am also hoping if someone can help me get a rough idea, does this kind of scenario happen often?

To me it does sound quite logical....if someone knowingly can't even afford to pay property tax for his family primary home, he must have been in a really tough situation and might as well put everything behind and start over?

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