Tax lien inters rates

24 Replies

This is a rather broad question which may be covered by respective statutes, however is there a maximum interest rate/penalty levied for tax lien redemption? I am curious of how high a principle interest rate is possible...

@Michael Kelczewski It varies tremendously by state. In some areas it even varies by county. In MD the rates vary from 20% at the highest and 8% at the lowest.

@Ned Carey

Would the interest rate regulations be contained within Real Estate  related  Articles or Books? Or possible Financial Law?

@Michael Kelczewski generally the best source will be the county website for the location you want to invest.  Sometimes the links to tax sale are not on the front page and buried a page or two down. It might also take a phone call. 

Important to know how the bidding works. In many if not most states the interest rate listed is the starting rate and you may not actually get that much based on bidding rules. 

Links like @John Underwood posted are good for a starting point.  However I would be a little skeptical of information in many links promoting tax sales. They often have errors.  Virtually all of them have dated information for Maryland.  Johns link said MD is 20% plus. The reality is only one county, PG, is at 20%, the rest start as low as 8%

@Ned Carey @John Underwood I appreciate both responses and the information provided. 

Admittedly, tax certificate investing recently caught my attention...

I do believe Delaware lacks interest rate caps..As the usury laws were repealed in the 80's to lure financial entities. 

Not sure if this is what you're looking for, however, I believe that in Kent County, Delaware, the interest for a tax redemption is 15%.

Citing the following: "The original owner of the property has approximately 60 days to redeem their property. If the original owner does redeem their property, the buyer will receive their money back plus 15% of their bid. Within this 60 day period, the buyer will only hear from the Kent County Sheriff’s Office if the property is redeemed or if the sale has been overturned by the court."

Source: 

http://www.co.kent.de.us/media/866432/EDITED-Kent-...

Originally posted by @Ned Carey :

@Michael Kelczewski generally the best source will be the county website for the location you want to invest.  Sometimes the links to tax sale are not on the front page and buried a page or two down. It might also take a phone call. 

Important to know how the bidding works. In many if not most states the interest rate listed is the starting rate and you may not actually get that much based on bidding rules. 

Links like @John Underwood posted are good for a starting point.  However I would be a little skeptical of information in many links promoting tax sales. They often have errors.  Virtually all of them have dated information for Maryland.  Johns link said MD is 20% plus. The reality is only one county, PG, is at 20%, the rest start as low as 8%

So, I've been researching Maryland Commercial Law and found the interest rate Article covered within the Maryland Annotated Code. Apparently the statute sets a limit of 24%; the maximum loan origination fee of $250 or 10% of the proceeds of the loan, whichever is less of the second mortgage. First lien interest rates are not capped. 

@Michael Kelczewski what you found refers to loans but not tax liens. Tax liens are in a different part of the MD code. As far as I know the highest rate for tax liens is 20% in MD which is PG county. baltimore city is the next highest at 18%.

Originally posted by @Ned Carey :

@Michael Kelczewski what you found refers to loans but not tax liens. Tax liens are in a different part of the MD code. As far as I know the highest rate for tax liens is 20% in MD which is PG county. baltimore city is the next highest at 18%.

Does MD set a statutory limit or are the rates solely set-forth per county?

@Michael Kelczewski I believe MD may have a statutory limit on interest that can be charged and I believe it is 24%. However that applies to general lending not specifically Tax sale. I believe each jurisdiction sets their own rates for tax sale.

Originally posted by @Ned Carey :

@Michael Kelczewski I believe MD may have a statutory limit on interest that can be charged and I believe it is 24%. However that applies to general lending not specifically Tax sale. I believe each jurisdiction sets their own rates for tax sale.

What is the maximum rate you've realized through MD tax cert investing? 

I've been digging deep into MD Real Estate Law recently as the market captured my attention... 

@Michael Kelczewski I have had 18% returns regularly in the Baltimore city tax sale.  Overall our portfolio generates a return of about 16-17% (in MD bidding over 40% of the assessed value starts to reduce your return)

Originally posted by @Ned Carey :

@Michael Kelczewski I have had 18% returns regularly in the Baltimore city tax sale.  Overall our portfolio generates a return of about 16-17% (in MD bidding over 40% of the assessed value starts to reduce your return)

 Ned, I get the percentage return from ones that are redeemed, but how many turn into actually properties owned? Isn't that part of the strategy also? To take ownership and then flip or rent?

@Shawn Clark

I am curious, what is your possession rate? I recently missed a locally opportunity, as I was concerned of holding costs. Additionally, the rehab/remodel budget exceeded my current risk tolerance. 

Originally posted by @Michael Kelczewski :

@Shawn Clark

I am curious, what is your possession rate? I recently missed a locally opportunity, as I was concerned of holding costs. Additionally, the rehab/remodel budget exceeded my current risk tolerance. 

 Was that question meant for me? I was asking Ned a question. I've never done anything with tax sales before. What do you mean by "possession rate"?

Originally posted by @Shawn Clark :
Originally posted by @Michael Kelczewski:

@Shawn Clark

I am curious, what is your possession rate? I recently missed a locally opportunity, as I was concerned of holding costs. Additionally, the rehab/remodel budget exceeded my current risk tolerance. 

 Was that question meant for me? I was asking Ned a question. I've never done anything with tax sales before. What do you mean by "possession rate"?

@Shawn Clark The question was directed towards you. I assumed tax lien investment was the topic. 

The "possession" action pertians to deed/title. 

@Shawn Clark & @Michael Kelczewski   my company acquires about 15% of the properties we buy liens on.  i don't know what the actual sales price of those properties represent as a percentage return on the actual purchase price of the liens.

The 15% is a pretty high number compared to most tax sales and tax sale investors. That is because, we invest in Baltimore city which has a lot of distressed housing and we focus on properties we are likely to acquire. We invest mostly in the lower 1/3 of the market.  

This is a high risk strategy. Not all will be winners. I just got an email today that we are going to walk away from our investment on Paton Ave. There is a $12,000+ water bill.  We likely would barely get enough just to cover that water bill.

Originally posted by @Ned Carey :

@Shawn Clark & @Michael Kelczewski   my company acquires about 15% of the properties we buy liens on.  i don't know what the actual sales price of those properties represent as a percentage return on the actual purchase price of the liens.

The 15% is a pretty high number compared to most tax sales and tax sale investors. That is because, we invest in Baltimore city which has a lot of distressed housing and we focus on properties we are likely to acquire. We invest mostly in the lower 1/3 of the market.  

This is a high risk strategy. Not all will be winners. I just got an email today that we are going to walk away from our investment on Paton Ave. There is a $12,000+ water bill.  We likely would barely get enough just to cover that water bill.

 Very interesting. Thank you for the reply.

Originally posted by @Ned Carey :

@Shawn Clark & @Michael Kelczewski  my company acquires about 15% of the properties we buy liens on.  i don't know what the actual sales price of those properties represent as a percentage return on the actual purchase price of the liens.

The 15% is a pretty high number compared to most tax sales and tax sale investors. That is because, we invest in Baltimore city which has a lot of distressed housing and we focus on properties we are likely to acquire. We invest mostly in the lower 1/3 of the market.  

This is a high risk strategy. Not all will be winners. I just got an email today that we are going to walk away from our investment on Paton Ave. There is a $12,000+ water bill.  We likely would barely get enough just to cover that water bill.

@Ned Carey Wilmington is a comparable market to Baltimore. Sadly, both cites are satellites of larger markets with similar housing stock/economic hurdles.. Many brick 19/20th century examples requiring repairs exceeding market values... 

Do you Section 8 the acquired properties? 

@Michael Kelczewski When i was in sales Wilmington was part of my territory.  This was  before I was real estate investing but I was thinking this looks like a good place to invest.  I guess i just like old houses.

Yes we do rent to section 8.  The properties we acquire we sometimes add to our rental portfolio but as often as not we wholesale them off to other investors.

Originally posted by @Ned Carey :

@Michael Kelczewski When i was in sales Wilmington was part of my territory.  This was  before I was real estate investing but I was thinking this looks like a good place to invest.  I guess i just like old houses.

Yes we do rent to section 8.  The properties we acquire we sometimes add to our rental portfolio but as often as not we wholesale them off to other investors.

Currently from an asset cycle perspective maybe. However, the anarchistic layouts  of the mutually adored older properties are major hurdles...

Interesting, I will be MD licensed by the spring - perhaps I'll help liquidate a portfolio. 

A few years back, I was almost certain I discovered a Frank Furness until the circa 1880 building permit indicated a Furness firm design by Tacker and Deckett. Ironically, the building was nearing demo as we intended to construct a multi-family until the historic preservation board became aware. 

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