Tax Lien Property Burned Down

Tax Liens & Mortgage Notes
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Tax Lien Property Burned Down

Kyle Meyers
Residential Landlord · Indianapolis, IN · Member since 2010 · 592 posts · 138 votes

I bought my first tax liens last year with 1 year redemption. I went to look at the properties today to make sure they were in good condition and discovered one had burned down. Has anyone else had a similar experience?

I am wondering if there is a good way to insure against these losses. I contacted my insurance agent several months ago, but he was unsure of how to write a policy for that. I called today after seeing the damage and he said it may be covered under a separate policy I have which includes a provision for newly acquired properties.

I am only in for a couple thousand right now, but the property would be worth at least $15k and the redemption period ends Monday.

Any input is greatly appreciated.

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George P.
Real Estate Investor · Baltimore, MD · Member since 2008 · 1k+ posts · 268 votes
14y

You can't insure the property if you don't own it. The property is not acquired by you until you complete the foreclosure. And only then the property can be insured against fire and other perils.

Your agent (obviously) doesn't know what he is talking about.

On the side note, buying a 2k lien on a 15k property? By the time you foreclose, you gonna be out no less than 10k (other liens, property taxes, attorney costs). Where's the margin?

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  • George P.
    Real Estate Investor · Baltimore, MD · Member since 2008 · 1k+ posts · 268 votes
    14y

    You can't insure the property if you don't own it. The property is not acquired by you until you complete the foreclosure. And only then the property can be insured against fire and other perils.

    Your agent (obviously) doesn't know what he is talking about.

    On the side note, buying a 2k lien on a 15k property? By the time you foreclose, you gonna be out no less than 10k (other liens, property taxes, attorney costs). Where's the margin?

    1Reply
  • Kyle Meyers
    OP
    Residential Landlord · Indianapolis, IN · Member since 2010 · 592 posts · 138 votes
    14y

    I should be able to insure it, though I agree the newly acquired properties clause probably doesn't cover it. A lien on real estate is an insurable interest, I would just have to find a company that will write a policy on the lien.

    As for your question about the margin, my investment is probably about $1K and that includes the lien purchase price, subsequent taxes, and attorney fees. Most other liens would be wiped out by a tax deed and I would own the property free and clear for what I have invested now. There would be costs associated with any repairs needed and if I were to sell with a broker I would have to pay their commission, but that should cover all the costs.

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  • George P.
    Real Estate Investor · Baltimore, MD · Member since 2008 · 1k+ posts · 268 votes
    14y

    If you do find a company that will underwrite the policy on a tax lien, please do let us know.
    In your first post you say you are in for a couple of thousands, in your second post you say you are in for a thousand and it already covers attorney fees. Which one is it?

    And how do you find an attorney who works for peanuts? Our Maryland lawyers charge no less than $3,000 to foreclose on the tax lien. Plus you have to bring property tax up to date (you kind of paid property taxes for previous year, but when foreclosing, you will also pay the taxes covering the period between the date of tax lien purchase and the foreclosure date. Plus any municipality liens and penalties that the property accrued in the same period. These are not wiped out.

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  • Kyle Meyers
    OP
    Residential Landlord · Indianapolis, IN · Member since 2010 · 592 posts · 138 votes
    14y

    Sorry for the confusion. When I first posted I had not yet had an opportunity to review all of my costs and just put a ballpark estimate. I have looked at my actual costs now and my total investment in this lien is a little under $1K.

    My attorney does the required notifications and petitions the court for the tax deed for $450. I spoke to several attorneys and this is a pretty standard charge for the services because it is based on the amount which the courts have set as a limit on how much can be added to the lien, which an owner will have to repay to redeem.

    You are correct that subsequent taxes and government liens will have to be paid to get the tax deed. I have paid the subsequent taxes, which were very low for this particular property. This property did not have any additional city or county liens on it. I have seen weed mowing liens and nuisance liens on other tax liens, the additional charges are usually no more than a few hundred dollars. There are risks of additional liens, but that comes with this kind of investing. I try to buy liens at an amount low enough that even if there are additional liens added to the property, the value will still be high enough to ensure a good return.

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  • George P.
    Real Estate Investor · Baltimore, MD · Member since 2008 · 1k+ posts · 268 votes
    14y

    it's a different story then.

    I still hold my grounds regarding insurance though :)

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    14y

    I have looked into tax liens but have never taken the plunge.

    In my state you have to be careful because there are funny laws county by county.

    Fulton for example the water liens by the county survive any foreclosure proceeding.

    These water liens can be huge.I have seen from tens of thousands to over a hundred thousand because of leaks etc.

    I would rather buy a lien on a nice property in a better area.The thoughts of waiting a year to acquire a sub par property that might be burned down or destroyed is too risky for me.

    The redemption rate hear is in the 90's that the taxes will be paid so you have to get the return off of the rate itself.I have not seen insurance write such a policy.

    Here you have to pay a bunch also to quiet title.You can get the tax deed by foreclosing but also have to do a separate action after that.The tax lien laws is the one area I have see is very different everywhere you buy.

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  • Kyle Meyers
    OP
    Residential Landlord · Indianapolis, IN · Member since 2010 · 592 posts · 138 votes
    14y

    Yes, quiet title will add to your cost. I am buying liens on properties I would like to hold as rentals, so I am not going to quiet the title since I don't plan to sell soon. When I want to sell I will have to quiet the title or find a title insurance company which will write a title policy without the quiet title action being completed.

    1Reply
  • George P.
    Real Estate Investor · Baltimore, MD · Member since 2008 · 1k+ posts · 268 votes
    14y

    Kyle - what are you buying exactly? Liens or Deeds?
    They are two different animals and you seem to be mixing them two.

    1Reply
  • Jamie Gaymon
    Real Estate Investor · Somerdale, NJ · Member since 2008 · 42 posts · 30 votes
    14y

    Kyle, I have to agree with George, I don't see any way possible for you to be able to purchase insurance on a lien. That would be like a mortgage company being able to buy a homeowner's insurance policy on your house. When you buy a lien, your insurance of receiving compensation is the house, right? Once you foreclose on it, that's a different matter entirely, and buying deeds is also a completely different matter.

    1Reply
  • Kyle Meyers
    OP
    Residential Landlord · Indianapolis, IN · Member since 2010 · 592 posts · 138 votes
    14y

    In Indiana, you buy the tax lien and if it is not redeemed within 1 year you are entitled to the tax deed. I bought the liens in October 2010, so I am now entitled to the deeds and my attorney is filing the required paperwork to get the deeds issued.

    I still believe the tax lien is an insurable interest, I have not yet done much searching for a company that will write a policy, and I don't know that there is one or whether the premiums would be too high. I may be wrong though, and I guess I won't really know until I cannot find anyone to insure my liens.

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  • Keaton Miller
    Indianapolis, IN · Member since 2012 · 4 posts · 1 vote
    14y

    Kyle, I just sent you a message about some other tax lien issues but I wanted to weigh in on this as well...

    I used to work in banking, and if a borrower does not pay their insurance, the bank will "force place" insurance. I don't see any reason why you wouldn't be able to insure a property that you have a tax lien on. (Although typically insurance is dramatically more expensive if the property is vacant... not sure if you'd have to tell them that or not.) Please let me know if you do find an agent to handle this for you... I'd probably like to use them myself as well.

    1Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    14y
    Originally posted by Jamie Gaymon:
    Kyle, I have to agree with George, I don't see any way possible for you to be able to purchase insurance on a lien. That would be like a mortgage company being able to buy a homeowner's insurance policy on your house. ...

    Lenders and servicers actually do get insurance policies sometimes; it's called "force placed" insurance, and has a premium payment at least double what normal homeowner's policy would be. For example, they do this in scenarios where the homeowner's policy has been cancelled.

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  • Gregory London
    Investor · Kenner, LA · Member since 2012 · 24 posts · 4 votes
    14y

    Man that sucks dude. I guess tax liens aren't as safe as everyone says they are.

    0Reply
  • Will Sifert
    Investor · Covington, LA · Member since 2012 · 517 posts · 317 votes
    14y
    Originally posted by Gregory London:
    Man that sucks dude. I guess tax liens aren't as safe as everyone says they are.

    Don't believe everything you hear or see on the late night info-commericals... Buying tax sales is not a 100% sure deal. There is a LOT of learning that is involved to doing it right. I made a couple rookie mistakes my first year and lost money. I am sure I will make more mistakes as I learn and become experienced but hope to keep them to a minimum.

    There is lot of ways you can lose money, but if you understand completly how it works and know what to look for and what to avoid you can increase your odds of success greatly!

    0Reply
  • Troy Michaels
    Real Estate Investor · Atlanta, GA · Member since 2009 · 117 posts · 7 votes
    12y

    bumping this up for a answer about insurance on a tax lien....

    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    12y

    A mortgage is an insurable interest, as they are listed as an additional insured and Force Place insurance all the time. I don't believe having a lien is an insurable interest, no more than having a civil judgment that attaches to a property.

    0Reply
  • Michael Oldehoff
    Phoenix, AZ · Member since 2013 · 42 posts · 10 votes
    12y

    Are you just trying to insure for your investment amount in case the property takes significant damage? Or are you trying to insure for the entire amount of the collateral. I could see you getting insurance on the former but definitely not the latter.

    Hell, I would insure them for you for the investment amount if I could.

    0Reply
  • David Boykin
    Real Estate Consultant · Augusta, GA · Member since 2014 · 36 posts · 8 votes
    11y

    @Kyle Meyers 

    I am curious to know what you found out about insuring tax lien property. I'm also in a state with a one year redemption period. I bought 12 tax liens this year and a few would definitely be worth insuring. Seems like someone would offer it, almost as stop loss insurance. The likelihood of the owner not redeeming the property and the property getting destroyed has to be extremely low. Seems like a good bet for an insurance company.

    0Reply
  • Kyle Meyers
    OP
    Residential Landlord · Indianapolis, IN · Member since 2010 · 592 posts · 138 votes
    11y

    @David Boykin

    I believe National Real Estate Insurance Group offers a policy of some sort. I never made it to insuring any liens, but I think I found them listed as one of a few companies that offer coverage on liens. 

    0Reply
  • David Boykin
    Real Estate Consultant · Augusta, GA · Member since 2014 · 36 posts · 8 votes
    11y

    Great, thanks! I just sent them a message to see what services they offer. 

    0Reply
  • Tom Yung
    Investor · Winnipeg, Manitoba · Member since 2013 · 303 posts · 321 votes
    11y

    @David Boykin

    You are buying redeemable tax deeds in GA. If the house is still owner occupied. I will save the insurance money. If the property is bank owned & vacant; it may well worth the insurance cost (around 80-125/month; based on $65/sq. ft.) Yes, National will insure tax deed properties.

    In GA, it will take up minimum of one year & 45 days before you can set foot on your tax deeds property. Most of the property if not owner occupied will be vandalized.Be prepared for the worst. 

    0Reply
  • David Boykin
    Real Estate Consultant · Augusta, GA · Member since 2014 · 36 posts · 8 votes
    11y

    @Tom Yung

    Thanks for the information on Georgia tax deeds. I've only been to a few Georgia tax sales and found they get bid up pretty high. I've never purchased a tax deed in GA. 

    I'm pretty much on the GA/SC border. The tax liens I purchase are SC tax liens.

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    11y

    Sorry to hear about that @Kyle Meyers  

    I guess all those Guru Pitches about zero risk in tax liens aren't true after all.

    Ned

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