tax lien certificates?

9 Replies

Does anyone know about investing in tax lien certificates? I know a little about them, but I am still a little confused. For one, it seems to me that if someone has been failing to pay their property taxes, there is a high chance that they have not been paying their mortgage either. In this case I imagine the mortgagee has priority over the property. Therefore if the homeowner does not pay off the tax lien or the mortgage, and the bank forcloses before the leinholder, does the lienholder get screwed? Also lien investing seems like it takes a lot of work. Is it possible to make a living off lien certificates without a massive starting fund (tens of thousands rather than hundreds of thousands)? What are the risks in investing in lien certificates? I refuse to believe believe that they are "Risk Free" like these online gurus are trying to tell me.

Hello,
I am also learning and researching more about tax liens. I have not invested in them yet.

From the research that I have done, each state has a different process. And you should check what your state offers. I am in Texas and we do auctions.

But my understanding is that the mortgage is a separate issue from their county taxes. You can still make your mortgage payments but owe on your taxes. A lien is placed on the property. You buy the lien and it is like having a 2nd position note attached to the property. Further, my understanding is that a property cannot be sold unless all liens have been satisfied (including foreclosure). But I have not verified this information yet.

I would be interested to know what state you are in. What research you have done? What have you learned?

A tax lien is a first position lien. It takes priority over a mortgage. If you buy the tax lien and it is not paid off during the specified period, you can take steps to forclose on the property and the bank's mortgage will be wiped out -- you own the property free and clear, subject to any previous tax liens that might be on the property from previous years. Only another tax lien can take priority over a tax lien. The only state I know of where this isn't true is in New Mexico, where a tax lien is not a first priority lien. Also, there is a special lien called a "weed lien" imposed by the county for mowing the grass. This would have to be paid as well.

Hey, just to confirm his information. The tax lien will always be paid out of any foreclosure action BEFORE any mortgage notes are paid. The government will always get their money first. When you buy the note, you also buy the advantage of the position in the process. There are several states that offer a pretty high return in the tax liens, but I do know that you really need to know the process before you try to get one. You generally should go watch the process before trying to do it. I have been to several in Texas, and I know that if you don't know who is going to be auctioning a particular property, you will probably never know the auction went down in the corner of the hallway. Get to know some of the good old boys in the area and if you can earn their trust, they will generally mentor you through the process.

As an FYI, Texas and Illinois are the two best return for you money on tax liens.

Regards,

Troy Knutson

Originally posted by "troypknutson":
Hey, just to confirm his information. The tax lien will always be paid out of any foreclosure action BEFORE any mortgage notes are paid. The government will always get their money first. When you buy the note, you also buy the advantage of the position in the process. There are several states that offer a pretty high return in the tax liens, but I do know that you really need to know the process before you try to get one. You generally should go watch the process before trying to do it. I have been to several in Texas, and I know that if you don't know who is going to be auctioning a particular property, you will probably never know the auction went down in the corner of the hallway. Get to know some of the good old boys in the area and if you can earn their trust, they will generally mentor you through the process.

As an FYI, Texas and Illinois are the two best return for you money on tax liens.

Regards,

Troy Knutson

For some non-homestead properties, in Texas, you can own the property within 6 months. Pretty sweet. At minimum the owner has to pay the taxes and 25% penalty, a very good return in the first year if it gets redeemed.

Actually in Texas you don't buy the lien. You buy title to the property, but the prior owner has the right to redeem the property back from you for the taxes plus 25%. For non homestead it is the 6 months, but for homestead properties the redemption period is two years. For that time period you have title to the property but you will not be able to get clear title if you want to sell or refinance it.

Originally posted by "Ryan Webber":
Actually in Texas you don't buy the lien. You buy title to the property, but the prior owner has the right to redeem the property back from you for the taxes plus 25%. For non homestead it is the 6 months, but for homestead properties the redemption period is two years. For that time period you have title to the property but you will not be able to get clear title if you want to sell or refinance it.

Texas is hybrid, not really a title and not really a lien because of that redemption period unlike other tax deed states that give no redemption period. You're right about the homestead properties, it is 2 years.

It is a flawless process, of course if you do it right like anything else, risk is almost zero, it is just a matter of how much % you get out of your money. Most likely I'm buying some tax liens next season auctions, that is between March and May next year depending on the state/county, some of them are online auctions which is great.

Good luck!

lrpf