Illinois tax liens..0-3%?

19 Replies

I'm VERY new to this, so I have to be overlooking something.  In Illinois they do a bid down auction on the penalty interest.  And after some research, I found the majority of the winning bids on the liens go for between 0-3%!  How are people making money with those interest percentages?  Seems like a ton of leg work for such a low return.  Am I missing something?

Thanks!

Chris

@Chris Bojanowski

One thing to keep in mind is that 90+% of the time there is a mortgage on the property at the tax sale and the banks send representatives there that will bid and win the property at 0% just to protect their interest in the property. 

As I am sure you know, tax liens wipe out a mortgage so they are not interested in earning a return, they just want to preserve their interest in the property.

I was very interested in tax lien investing until I started attending auctions and seeing the same 5 people in suits instantly bidding 0% on almost every single property.

Hope this helps!

James

Wow.  That makes sense.  What about the homes/properties that are already paid off?  And the scavenger sales?  So is there any money to be made with someone like myself (5-10K to invest) 

Thanks!

Chris

Chris, I bought a Tax Lien 16 yrs ago on a property on the north side of Chicago. It was a SFH in a decent middle class neighborhood. I bid 18% and won! In 3 months the owner of the home redeemed and I got paid my investment + 18%. While I was bidding, I did notice a lot of properties being bid down by a few people. In fact, they would have bid me down except for the fact that I strategically sat in the back of the room when I bid. By the time these people turned around to see who had yelled out "18", the auctioneer had already said "Sold". The auctioneer does not wait around. If you don't immediately bid against the person, he sells it and moves on. Remember, in Cook Co. there are hundreds of properties that the auctioneer is going thru. It doesn't matter to the county people what bid wins, because remember the county is just interested in selling the taxes. It is the owner that has to pay the penalties when they redeem. I am planning on doing this again in Will County.

James, thats a great score!  And definatley let me know how the Will county auction turns out.  I really want to dive into this, however my concern is spending hours upon hours of research on properties only to not win the bid at a good percentage.  Could be a huge waste of time. And judging by the percentages that ive seen from the surrounding counties, the average on any property of worth is under 4%. Thoughts? and what kind of leg work are you doing for the upcoming sale?

Chris

@Chris Bojanowski I gave some feedback on the past results of the Will county tax lien auction for the last few years on another thread; here.

I did some playing with the results data again and this time I did the average rate of return by "Building Type" as listed in the county records. This is more for fun since you can see in the list there are very similar "types". Not much you can do with this data.  Some have numbers at the beginning which I take to be some kind of code the county uses.

This data alone shows how inconsistent some counties have in their data. It would be interesting to know how the county defines "Newer" versus "Older" in the building types.

@Chris Bojanowski   I am sure that if the property is paid off then it is fair game and you would be in a situation as @James Bitakis mentioned; making a good return on your money as the original homeowner does not want to lose their property due to non payment of taxes.   

Like I said, I do not have a ton of experience in tax liens,  but I know that you will want to at a very minimum drive the properties that you intend to bid on and make sure that they are standing (not burned to the ground) and not condemned.  You can also check the county recorder, although most liens are wiped out by the tax sale.

If you are the winning bidder and that property has been abandoned (meaning nobody will ever redeem it) and it has multiple violations against it, you may have acquired a liability instead of an asset.

I just read in the chicago tribune about a tax lien investment group who basically gave a bunch of houses and lots to a homeless man.  They claimed that it was out of the goodness of their hearts but really it was after the city had filed liens and court actions forcing the property owner to pay tens of thousands of dollars on the property.  Since they were no longer the owner, they were able to go to court and get themselves removed as defendants in the case.

Illegal, no, but unethical?  Absolutely.  

The moral is that if you do not do your research you may never get a return on your money (18%) and may end up with a property that nobody wants or that will cost you money in the long run.  

I am sure there are deals to be had, but to me it is like a needle in a haystack.  And there are already tons of people scouring that haystack!  I am not saying do not do it, nobody ever achieved anything by not doing anything, but at the same time if you only have 10-15k that you absolutely cannot afford to lose then you may be better off with a different strategy, maybe use that money as down payment on a duplex or three flat possibly.  You can achieve cash flow that would easily give you 10-20% cash on cash return on your money and have an appreciating asset with much less risk.  Just a thought and good luck!!

Originally posted by @Jerry K. :

@Chris Bojanowski I gave some feedback on the past results of the Will county tax lien auction for the last few years on another thread; here.

I did some playing with the results data again and this time I did the average rate of return by "Building Type" as listed in the county records. This is more for fun since you can see in the list there are very similar "types". Not much you can do with this data.  Some have numbers at the beginning which I take to be some kind of code the county uses.

This data alone shows how inconsistent some counties have in their data. It would be interesting to know how the county defines "Newer" versus "Older" in the building types.

Jerry, is anyone just allowed to view the auction, and not bid or register?

Are there a lot of bidders at the Will County sales?  It sounds as though sales have changed a lot since I bid and won my TLC back in 2000.  I read the Will county site and it says all the investors get laptops to bid on the properties.  It seems as though the average residential is around 10% winning.  That doesn't excite me as much as 18%.  Do you bid often in Will County?

Let me say this too.  The reason that I did not buy more Tax liens (bought this only 1 in 2000), was because it was a lot of work for just 18% I thought.  I investigated about 20 properties, was at the Cook County building 5-6 times researching any other liens, or back taxes owed on these properties.  Then when I initially starting bidding, it felt to me as though the big investors were purposely bidding against me (but not against each other large investor) and any other small investors.  It was almost like they were trying to get us to "give up" and go home.  I couldn't understand this because I only wanted 1 lien, compared to them bidding on hundreds.  I felt like saying, "Cmon guys, can't you just let me have 1, you greedy bastards".  Anyway, the way I gave them the slip was that I changed my location to the back of the room the following bid day. They, not wanting to bid against other large investors, were not sure at first who yelled "18", and so they turned around and before they could bid against me, the auctioneer said "Sold" and moved on.  So that is how I outsmarted the large investors.  But all the research took probably 20 hours.  The lien I bought was only $1100, so I made approximately $198.  For 20 hours worth of work, I didn't feel it was worth my time to do it again.  Of course, in retrospect, I feel that the more I would have done it (the research, etc.), the faster I would have been able to do it.  But life's issues got me sidetracked.

@James Bitakis - I live in Will county but I don't bid/invest here. The last time I attended was in the late 1980's. It was all open outcry auctions then and the best property liens were all won by a small group of investors. I would never be able to prove it, but it seemed like typical Illinois politics. People with political connections won the best liens at the highest rates. See this case from 2013 in IL involving the Madison County Treasurer. And this article St. Clair tax sales show disturbing similarities to bid-rigging scheme.

I keep track of the results of Will because the county website publishes the results each year. It's pretty funny to see the names of the winners; like AL CZERVIK LLC, TY WEBB LLC (both are character names from the movie Caddyshack) and an entity name "Scrub a Dub".

Based on your comment about each investor getting a laptop to bid, tells me Will county is now using RAM auctions for bidding. RAM auctions is run by a downstate Illinois firm and they have their system used by several IL counties. It helps eliminate the issue of an auctioneer steering bids to only a select group of people, but it still means you have to be at the county building in person to bid.  Here is a video from several years ago of how the auction works with that system from Peoria; 2009 Peoria County Tax Lien auction.

It is weirdly quiet as all the bidders sit in one room and each lien is sold in 5 seconds. You can't look away or you could miss the auction of a lien you want.

10% on residential from my spreadsheet is actually higher than reality. My results include the liens that no one bid on and the county takes them back at 18%.  You filter out the county 18% liens and the good residential parcels on average earn only 0%-2%. You have to get to the less populated counties to get higher rates on liens with houses.

I would say you should beat the competition by visiting the default tax property to find the owner, knock on door (the house may be vacant - how you really have to work, but it will be worth it), ask if they'd like to sell.  Control the property, pay the back taxes and do your thing, flip, finance, fix it up, rent it.

Many inexperienced tax buyers in IL don't realize that while the bid rates on the initial tax sale are typically low (0-5%), the penalty rate on subsequent years' taxes paid and posted by the tax buyer are 12% per year or part thereof. Therefore, if someone redeems the tax sale the day after a tax buyer pays and posts a surtax, the tax buyer has just made 12% interest. A year and a day later, the tax buyer would make 24% interest. Another thing to keep in mind is that only "police and welfare power" municipal liens must be paid before obtaining a tax deed in IL, other muni liens and judgments do not have to reimbursed and are the liability of the former owner not the tax buyer. I have many clients, both professional tax buyer and "mom and pop" tax buyers that are doing quite well investing in IL tax liens.

Originally posted by @Emmett McCarthy:

Many inexperienced tax buyers in IL don't realize that while the bid rates on the initial tax sale are typically low (0-5%), the penalty rate on subsequent years' taxes paid and posted by the tax buyer are 12% per year or part thereof. Therefore, if someone redeems the tax sale the day after a tax buyer pays and posts a surtax, the tax buyer has just made 12% interest. A year and a day later, the tax buyer would make 24% interest. Another thing to keep in mind is that only "police and welfare power" municipal liens must be paid before obtaining a tax deed in IL, other muni liens and judgments do not have to reimbursed and are the liability of the former owner not the tax buyer. I have many clients, both professional tax buyer and "mom and pop" tax buyers that are doing quite well investing in IL tax liens.

 how long is the process to get the tax deed ? I believe homeowner has 2.5yrs in cook county to buy back. i think the bidding changed these days a bit. you have a chance against big corporation because if there are more than 1 bidders who bids 0% computer soft randomly assigned the winner. one thing I have a hard time to understand is ..in August 2016 we will be bidding on 2014 unpaid taxes. what if there are 2006 unpaid taxes or 2004 ? lets say the property was empty for a long time and nobody bothered to buy the taxes. online delinquent taxes system goes back to I believe 2011. is there some quick and easy way to find out that no other taxes are delinquent ? browsing thru those books in Daley center ...going back 10 years ...not sure they even have books from 2006 ...

The redemption period depends on the type of property and the number of tax years delinquent. If it's a dwelling structure of 6 or fewer units, the initial redemption period is 2.5 years and can be extended by the tax buyer to 3 years. If you have gone thru the legal process (petition for tax deed, take notices, etc.), you can usually obtain your deed about 1-2 months after the redemption period expires. If you are going to be bidding at the 2014 Annual Tax Sale in 2016 and there are prior years, those prior years' taxes will be added to your tax sale and if not, they will be "merged" (wiped out) into your tax deed once you obtain and record your tax deed. If you want to find out the tax history, order a tax search from the Cook County Clerk or check the County Clerk's website online. Good luck.

I gave up on getting educated on Cook County taxes.  Seriously, who knows this stuff, besides the corporations that does this full time?  This information is not public knowledge, which it should be.  This is why I hired a lawyer who knows this stuff.  Good luck finding one, there are not many out there.... 

Originally posted by @Emmett McCarthy:

The redemption period depends on the type of property and the number of tax years delinquent. If it's a dwelling structure of 6 or fewer units, the initial redemption period is 2.5 years and can be extended by the tax buyer to 3 years. If you have gone thru the legal process (petition for tax deed, take notices, etc.), you can usually obtain your deed about 1-2 months after the redemption period expires. If you are going to be bidding at the 2014 Annual Tax Sale in 2016 and there are prior years, those prior years' taxes will be added to your tax sale and if not, they will be "merged" (wiped out) into your tax deed once you obtain and record your tax deed. If you want to find out the tax history, order a tax search from the Cook County Clerk or check the County Clerk's website online. Good luck.:

speaking of taxes. how much confidence do you have in the online portal where you can check delinquent taxes for cook county ?

http://www.cookcountyclerk.com/tsd/delinquenttaxse...

do you think it is pretty accurate ? I checked with the clerk today, gave her my PIN number and they pulled different information that is available online....do you have similar experience ?

The Cook County Property Tax Portal and the County Clerk's Delinquent Property Tax Search provide different types of information. That being said, both sites have disclaimers at the bottom re: they are not the official records. As I always tell clients, the online information should be used as a tool but not as the "official" records. I am frequently retained for the purposes of giving clients an objective analysis of the tax situation on various properties and then guiding them through the process, whether they are investors, property owners, mortgage companies or title companies. Thanks for asking and good luck!

Originally posted by @Emmett McCarthy:

The Cook County Property Tax Portal and the County Clerk's Delinquent Property Tax Search provide different types of information. That being said, both sites have disclaimers at the bottom re: they are not the official records. As I always tell clients, the online information should be used as a tool but not as the "official" records. I am frequently retained for the purposes of giving clients an objective analysis of the tax situation on various properties and then guiding them through the process, whether they are investors, property owners, mortgage companies or title companies. Thanks for asking and good luck!

ok thanks. do you trust their online system as far as delinquent taxes ? in other words ..if you the see the screen below are you assured that there are nothing delinquent  or you came across  instances that once you dig deeper there were past due taxes..even though the system did not show anything 

I always check the official county records, the judgment books and warrant books, if I need to be sure. If I have a client who is looking to buy taxes, we may order forfeiture bills depending on the circumstances. Relying solely on the Clerk's online search has its perils.