Just a few questions about tax lien sales!!

Yuba City, CA · Member since 2017 · 101 posts · 52 votes

Sorry for the newbie questions but I want to make sure I am fully prepared! Only stupid question is one you don't ask right?! So I am looking at a few tax lien properties and I did my research and I found out there is a mechanical lien so my first question is since this is a tax lien sale will I have to pay that lien off? From my understanding I should be in the clear unless this were a Mello roo, or IRS lien etc. also if I am the winning bidder how long before I am able to start working on the property? Does this vary by county (in assuming yes but thought it's better to ask and get feedback!) thanks for the input!

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Ned CareyPro Member

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Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes

@Ashley Hernandez I see you are in CA however CA does not offer tax liens, they do tax deeds. So this implies you are investing out of state. State laws vary tremendously but in general if you have a tax lien and foreclose you wipe out any other liens. An exceptions is an IRS lien but that is easily handled with proper notice.

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Roman M.
Investor · Miami Beach, FL · Member since 2016 · 486 posts · 216 votes
9y
You won't have to pay mechanical lien if you don't want to. Taxes lien is a superior lien to all liens and if you buy a property at tax deed sale then it technically gets wiped out however there are additional steps that might need to take place for it to happen (legal).
Additionally mechanical liens have a life of their own depending on state statue. In Florida for example, you have to take legal actions within 6 or 12 months for the lien to be valid. If you don't pursue the lien within stating time, then lienor looses the right to enforce the lien.
Regardless, check with your attorney regarding this.

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Ashley Hernandez
OP
Yuba City, CA · Member since 2017 · 101 posts · 52 votes
9y
Roman M. Awesome good to know! I will definitely follow up on this! Would this effect the title?
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Kenneth Kulpa
Wholesaler · San Jose, CA · Member since 2016 · 12 posts · 4 votes
9y
Like anything, you would potentially need to clear any discrepancies on title.
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Ashley Hernandez
OP
Yuba City, CA · Member since 2017 · 101 posts · 52 votes
9y
Kenneth Kulpa ok great kind of what I thought! Please forgive me but how exactly would i do that and would there be costs involved?
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Ned CareyPro Member
Moderator
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
9y
@Ashley Hernandez I see you are in CA however CA does not offer tax liens, they do tax deeds. So this implies you are investing out of state. State laws vary tremendously but in general if you have a tax lien and foreclose you wipe out any other liens. An exceptions is an IRS lien but that is easily handled with proper notice.
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Glen Doering
Schaumburg, IL · Member since 2017 · 22 posts · 5 votes
9y
@Ned Carey Thanks for sharing information. Could you share a little more on how you clear an IRS lien? Do you notify the IRS somehow?
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Ashley Hernandez
OP
Yuba City, CA · Member since 2017 · 101 posts · 52 votes
9y
@Ned Carey I am sorry I was using incorrect wording :) I am purchasing a Tax deed! Thank you for your input!
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Kenneth Kulpa
Wholesaler · San Jose, CA · Member since 2016 · 12 posts · 4 votes
9y
@Ned Carey
Thanks for the input. So a tax deed supersede's all other liens, except an IRS lien? Even a 1st or 2nd lien by a lender? (Which, obviously major lenders do not let happen as they monitor the taxes if the account/loan is not impounded.)
I concentrate on doing Loan Modifications for distressed owners, and at times we need to do a sale/short sale and we can get the IRS lien removed, other times no. It seems it depends on who you work with.
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Ned CareyPro Member
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Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
9y
@Glen Doering Yes you notify the IRS. they have some specific rules. I don't actually know how it is done. I don't need to that is why I hire attorneys.
@Kenneth Kulpa "generally" yes a tax deed supersedes other liens. However I am not specifically familiar with CA. My guess is like many tax deed states that theoretically all other lien holders are wiped out, however to get title insurance or "Marketable" title you need to do a quiet title action.
@Jay Hinrichs may have more to add.

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Ned Carey thanks for tagging me.
Mello Roos oh that brings back memories I did the very first Mello roos bond act in Nevada county CA which is right up the road from where this lady hails from.
Mello Roos is a utlitiy bond that is buried in your advalorum tax bill.. so you can't wipe it out its property tax.. the Mello bond is used to buy public utls from developers.. IE we / developer put in the streets sewer water etc.. and we create a Bond act that is passed by the county.. the bonds are sold to investors.. once the utls are accepted by the county or city they are used to buy the utls our bank loans or cash that has been used to put those in are then repaid or retired.. CA is so front end loaded on development this is one of the only ways CA was able to finance public improvements.
So when buying a tax sale property.. there is NO right of redemption.. you do not quiet title like others are talking about.. BUT depending on your standing in the industry some title companies wont write title insurance for 5 years some 1 year some will do it the day you get the deed.. Now AS Ned knows I grew up in this business in CA and we bought hundreds of parcels each and every years .. so our title company would insure us day one after recording of the tax collector deed.
for someone new or one off or not in the business title insurance is going to be something they want to ask about up front if a sale in a few years is what they want to accomplish or borrow money.
the ONLY way a CA tax sale can be over turned is if the person who lost it can prove the county did not publish 21 consecutive days prior to the sale as is the law... And that only makes the sale voidable they have to bring a legal action to establish that.. ( ask me how I know that pearl LOL)
So there you go two for one a little side bar on Mello Roos and how tax sales work in CA.
lastly it is quite rare for a improved property to go to sale in CA.. 99% is land and odds and ends at that.. non buildable strips land that does not perc etc etc.
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Ned CareyPro Member
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Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
9y
@Jay Hinrichs I am surprised CA gets away with that.
This case basically says without actual notice a party should not lose their property. They haven't been allowed due process. It was regarding Indiana law which seems similar to what you describe in CA.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Ned Carey were I learned the notification rule .. was we bought the middle of a new age church facility up in the Northern CA mountains. It included a nice home and other buildings it was 20 acres smack dab in the middle of their 500 acre retreat.
Well like a couple of bozo's my dad and I are so excited we drive right up there after the sale and some how let it out that we bought it.
they lawyer up and they sue to stop the sale.. they claimed they were exempt from paying tax's like churchs are .. but they bough this property subject too tax's and never paid the back tax's so while they did not owe when they owned it the tax's were for previous owner..
So we fight we get to trial ( one of the rare times in all my 4 decades I ever got in front of a judge) and we are just about to wrap up, Council for the Church is sitting there going over the dates of publications and it just dawns on him that tax collector for that year only published in the paper 20 days not the 21 days.. he makes a motion shows the judge.. Judge rules on the bench sale voidable and unwound it.. tax collector gives us our money back.. but we were out legal fee's.. as well as the other side got their property because they ran in and paid the tax's so it could not go to sale the next year ..
so every single property that went that year.. ( and in those years it was about 150 to 200 props per year being sold) could have been overturned.. to my knowledge that was the only one.. WE dominated the sales in that county buying 80 to 100 each year.. this county is just to the West of were the OP is from well actually one county over.
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Josh Carr
Wholesaler · Lehi, UT · Member since 2015 · 333 posts · 144 votes
9y
@Ashley Hernandez In CA there is no mechanic liens that will hold if you are the winning bidder. If you do get the property there is a litigation period of 1 year which is NOT a redemption period. It is a time frame that allows the property owner to contest the sale in court in case of erroneous sale or some other snafu that may have occurred where the sale should not have happened. You can rent, or live in but the recommendation from the local tax collector would be not to sale or do any major rehab until the litigation period has lapsed. If something does happen where there was a mistake and you cannot keep the property then you would gain a 6% interest rate on the transaction of the property.
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Ashley Hernandez
OP
Yuba City, CA · Member since 2017 · 101 posts · 52 votes
9y
@Josh Carr hummmm very interesting information!!! So lets say you did rehab and sell the property.... is that just advised that you do not do that just due to it being a risk? Maybe just consulting with a real estate attorney would be the best route if you chose to proceed?
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Ashley Hernandez fist off the chance of getting an improved property in CA at tax sale is extremely remote.. but as JOSH said the only way to unwind is if in that first year the person who lost it brings suit.. no going to happen very often.. if at all.. happened to us ONE time in 30 straight years of buying tax sale props..
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Ashley Hernandez
OP
Yuba City, CA · Member since 2017 · 101 posts · 52 votes
9y
Jay Hinrichs okay great thank you so much!!!!!
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Ashley Hernandez sure thing if your tracking a home or improved property that you think is going to sale.. you need to be contacting the owner now and buying it ahead of the sale.. that is what your competition is doing.. and that is why these rarely go to sale.
land for sure.. lots of land just is let go.. but with improvements very rare in our state of CA.
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Ashley Hernandez
OP
Yuba City, CA · Member since 2017 · 101 posts · 52 votes
9y
Jay Hinrichs completely agree with you there!!! Hopefully I'll be back to post how great it went soon!!! Thank you very much for your advice
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Ashley Hernandez
OP
Yuba City, CA · Member since 2017 · 101 posts · 52 votes
9y
Jay Hinrichs if I am looking to flip a tax auction property will the potential buyer have issues obtaining financing? Due to it being before the year being up?
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
suspect you WON"T get title insurance we buy in some states were the redemption period is long and we only sell for cash on quit claims.. which narrows the field substantially and your buying most deals ( and these are homes) for 10 to 40k each.. so risk is not great.
Yes a buyer will have great issues from having to wait a year to 5 years...
there in Yuba city go over to Marysville or even Yuba city and walk into fidelity or first American and talk to a title officer these are the folks who will let you know company policy that is if your buying in that county.. if its Colusa or Nevada or some other California county contact title company in the county every county will have a different position on this.
and like I said earlier if you have really no standing in the industry IE you have never really closed a deal with them .. your not doing any volume etc.. there is little chance they will take a risk for a 400 dollar title policy fee..
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Ashley Hernandez
OP
Yuba City, CA · Member since 2017 · 101 posts · 52 votes
9y
Jay Hinrichs okay great I will do that I appreciate your advice and time!!!
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Josh Carr
Wholesaler · Lehi, UT · Member since 2015 · 333 posts · 144 votes
9y
@Ashley Hernandez You could consult with a tax attorney about the litigation period but doing enough research on the property owner to find out if he is really delinquent and if he has other properties that he hasn't paid on and if he has investments he works with or not. It's usually not something you run into too often but you can imagine if you sold and rehabbed a property that should not have been sold. You may have done the rehab for free as it is not something they would have to pay back and getting a house back that you have already sold could turn into a big issue. Just some food for thought. It's not a law just a recommendation. The property owner is allowed that time frame to contest in court if they chose to do so. It's not really something a tax attorney could change but they could give you info about the property owner you may not get on your own. Let us know how it turns out.
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