Specialist · Phoenix, AZ · Member since 2011 · 698 posts · 629 votes
A couple of notes about the Arizona Yavapai county tax lien sale completed yesterday. Looking at the preliminary results Prelim only because investors have to pay the balance by 5 PM MT time tonight. If they don't pay their liens go to OTC status.
Comparing this year to last year:
Total # of liens sold:
2013 - 2,380
2012 - 2,494
Total $ of liens sold:
2013 - $3.4 million
2012 - $4.7 million
Average Interest Rate per lien paid:
2013 - 6.55%
2102 - 10.54%
Here are the top ten investors by total dollars invested:
Investor · Tucson, AZ · Member since 2013 · 116 posts · 22 votes
13y
There's a way to see who purchased liens in Pima County AZ (where Tucson is) but you have to buy a $50 CD (compact disk). I don't have the newest disk but I have the disk from January 2012 which tells who bought what in the years before and at how much interest.
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
13y
One more question. What types of properties for the liens where the investors are averaging much higher rates? The chart above says Rustic Investments bought 33 liens for an average of 14.94%. What risks/issues reduced the buyer pool so that they got the higher rates? Was it junk land not likely to get redeemed?
Specialist · Phoenix, AZ · Member since 2011 · 698 posts · 629 votes
13y
K. Marie Poe Your question prompted me to look at Rustic's detail. All but one lien was purchased in an unfinished residential development in Prescott Valley. Several roads and curbs are in, (but not all in the Google aerial shot below) and several homes are built.
The properties are titled to Read Homes Inc. and the few liens I just checked, I found the taxes have not been paid for 3 years. Seems Rustic could foreclose on all these right now, since there is a 3 year redemption period in AZ.
Specialist · Phoenix, AZ · Member since 2011 · 698 posts · 629 votes
13y
I picked up a handful of liens in a different area than Rustic. Half at 11% and half at 16%. All vacant residential, and all with 3 years worth of liens, so I could look at foreclosing if I want. Not real expensive properties, but as a group it could be worth it.
I may let these season a year to earn the high interest and then start foreclosure to either get paid the interest and redeemed, or end up with the properties that I would package and sell as a group.
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
13y
Please explain the foreclosure process. If you have a tax cert in AZ and are not paid, you state you could end up with the properties. How does that work? Are other investors or buyers able to bid on these, or can you simply transfer title one the tax liens are a certain time period old?
I am in SW Florida, and they auction off the properties to settle tax cert bills.
Property Manager · Dublin, OH · Member since 2009 · 1k+ posts · 291 votes
13y
Originally posted by Jerry K.:
The properties are titled to Read Homes Inc. and the few liens I just checked, I found the taxes have not been paid for 3 years. Seems Rustic could foreclose on all these right now, since there is a 3 year redemption period in AZ.
So if you buy a 3 or 4 years old tax lien you can foreclosure really instantly?
Specialist · Phoenix, AZ · Member since 2011 · 698 posts · 629 votes
13y
Originally posted by John Thedford:
Please explain the foreclosure process. If you have a tax cert in AZ and are not paid, you state you could end up with the properties. How does that work? Are other investors or buyers able to bid on these, or can you simply transfer title one the tax liens are a certain time period old?
I am in SW Florida, and they auction off the properties to settle tax cert bills.
Thanks!
John
John Thedford, Yes in Arizona the lien holder can end up with the property. Florida is one of the only states I know that sells liens, but when the redemption period expires, the property is auctioned for foreclosure instead of going to the lien holder who forecloses.
Each state is different. In Arizona the redemption period is 3 years from the date of the first sale. If the property owner has not paid the line after three years the lien holder can foreclose. It is a judicial foreclosure process, meaning that if the owner or any other line holder (mortgage, mechanics lien holder, etc) do not pay the back taxes and interest, then the lien holder get deed to the property. (IRS liens still survive and Homeowner Association liens can also survive)
Arizona also differs from other states in that if you bought a lien last year and the next year the owner still doesn't pay the back taxes or current taxes - you have the choice to pay the next year taxes too and keep both liens in force in your name. If you decide not to pay the taxes (called "subsequent taxes") for the second year, then the lien is sold in the next year auction and includes your prior lien amount plus all the interest you earned.
Whoever wins the lien that second year now holds both liens. You get your check for your principle and interest and you are done. The new lien holder holds the lien for both years. They also take over your original lien date because they bought the lien from you.
I bought several liens this year that were for 3 years of taxes, which in AZ means I can foreclose now if I choose. I could also just let the liens sit and accrue interest. I have to decide to foreclose by the 7th year (after the original lien date) or the original lien is invalid.
Always learn the rules of the state in which you are buying liens.
Specialist · Phoenix, AZ · Member since 2011 · 698 posts · 629 votes
13y
Originally posted by Uwe S.:
Originally posted by Jerry K.:
The properties are titled to Read Homes Inc. and the few liens I just checked, I found the taxes have not been paid for 3 years. Seems Rustic could foreclose on all these right now, since there is a 3 year redemption period in AZ.
So if you buy a 3 or 4 years old tax lien you can foreclosure really instantly?
-Uwe
Uwe S. Yes if you buy a lien that covers 3 full years of taxes then you can foreclose. Because 2009 taxes were sold as liens in February 2010, then any liens that covered 2009 taxes that were bought in the auction this year have the option of being foreclosed upon. 2010 to 2011 = 1 year, 2011 to 2012 = 2 years, and 2012 to 2013 = 3 full years.
I found a surprising large amount of properties had at least 3 years worth of taxes unpaid. Now some properties are junk, but many investors never want the property, they want the interest. So they just stop paying the sub taxes and let the lien go into the annual auction. That way the new buyer pays all the back taxes and interest and the old lien holder is paid off.
Many investors use liens as sort of a CD. They never want to pay the subsequent year taxes. If the owner doesn't pay during the first year, then the lien holder just lets it go to auction and new buyer pays them off with interest.
Specialist · Phoenix, AZ · Member since 2011 · 698 posts · 629 votes
13y
Originally posted by Jenkins Ramon:
@ Jerry K.
You prefer to purchase Arizona versus Illinois tax liens ?
Better rates ?
Are you using your own funds or private money / etc
to purchase liens ?
Jenkins Ramon, Yes, I buy Arizona over Illinois liens. I've talked about in other posts here in the past. Most Illinois counties require that you show up in person to bid. They go through each lien one at a time and it's a huge chunk of time.
The rates can be higher than AZ, but like AZ you bid down the interest rate and lowest rate wins. So I'm not losing that much interest.
The biggest reason I don't buy in IL is because when I started back in the late 1980's (and all bidding was done as an open outcry) it seemed certain people always won the liens for the best properties. There's a reason Illinois is considered the most corrupt state.
Is IL better now? I hope so, but I'm doing fine in Arizona liens.
Property Manager · Dublin, OH · Member since 2009 · 1k+ posts · 291 votes
13y
Very helpfull Jerry K.. Thank you.
I look actual at Pinal County and there three 40 acre parcels on Highway 77 with 3 full years of taxes.
One more question: Do you know how much does the foreclosure process cost?
Specialist · Phoenix, AZ · Member since 2011 · 698 posts · 629 votes
13y
Uwe S.
Foreclosure costs depend on the attorney. Ask a few that specialize in tax lien foreclosures in Arizona. Somewhere from $1,500 to $2,500 seems a typical amount.
I ran across one firm out of Tempe, AZ that offers a "free" tax lien foreclosure. Nothing is ever free, it's more of a "no money up front" deal. And can be very expensive when you see how they get paid.
What they do is they execute the 30 day pre-foreclosure notice (an AZ law) that is basically a letter to the owner and any other lien holders (mortgage holders, etc) stating a tax lien foreclosure will be filed in 30 days.
If the liens are paid off in the 30 days, then the lawyers charge you nothing (have to check to see if they at least charge postage for the letters) and you get all your money plus interest in full.
If nobody pays in that 30 days, then the lawyers file the Foreclosure. If you you end up with the property, they handle selling the property and you split the profit with them.
I've never talked to them so I don't know the nitty-gritty details. If I remember from the website they actually first pay you the lien amount and interest, then they deduct any court, postal and other fees for the foreclosure and selling the property - then the remainder is split with you.
This would seem feasible only if you are an out of state lien holder and property is not worth very much.
Specialist · Phoenix, AZ · Member since 2011 · 698 posts · 629 votes
13y
As I start to look at the results of the recently completed Yavapai tax lien sale, I found a couple of very interesting pieces of data;
1. The total number of bids placed in the auction in 2012 was just over 7 million bids. This year, 2013, the total number of bids was just over 99 million! The institutions seemed to move in with a vengeance.
2. I totaled up all the bids placed at each interest rate (0% through 16%) and in 2012 the rate that had the most bids was 9% with 3.8 million bids. In 2013, the rate with the most bids placed was 4% with 36.2 million bids.
The sheer number of bids and the fact that so many bids were at the lower rate supports why the overall rates won in 2013 were so much lower than 2012 (in my original post at the top).
Also, in 2012 there were 277 different named entities (individuals and funds) that won liens. In 2013 there were 200 different named entities.
Investor · Tucson, AZ · Member since 2013 · 116 posts · 22 votes
13y
Thanks for the info Jerry, the numbers of bids is absurd . . . I used to go to the Pinal County auctions when it was bidding on-site, it was really feisty but I made some of my best profits in Pinal County.
Now that it's all electronic, I quit bidding. I think there must be banks of bidders bidding on properties for one bidder or they have some kind of sophisticated bot bidding.
I also didn't like that I had to buy the assessor's information from the State board of realty for $100? In Pima County you can download all the assessor's data and merge the file with the delinquent tax list.
If I didn't have so much other stuff to do, I'd invest in Pima County. . . I used to be very enthusiastic about it, really gung-ho and I'd do research for two/three weeks solid looking at deeds (liens) on many of the properties.
I once gave a tip to a friend that if he got the property we would sell it and split the value minus his costs, it was oral deal (he was good friend), I could not afford the lien ($1700 plus subtaxes for three years), he ended up getting killed by a car crossing street. His wife knew about the deal but I disliked her. Back then I thought I was going to be a millionaire and didn't worry about the oral deal, his wife died shortly after and I'm not sure the daughter knows anything about it however her name was on the tax lien foreclosure lawsuit . . . I have been thinking of contacting her . . . I never got closure for his death . . . they were Muslims and had weird burial customs . . . not sure if they have a wake or anything, no funeral notice. I heard he lingered in bed three days before dying . . . I figured his wife was killing him, I disliked her. The townhouse was worth $250,000 and had a lot of stuff inside, never found out anything more, looks like the owner was deported or in jail?
If I ever get beck into the lien-buying business I could use a deep pocket, I have a very good system for picking winners, I often bid "zero."
Specialist · Phoenix, AZ · Member since 2011 · 698 posts · 629 votes
13y
Raquel Baranow, Wow! That tax lien deal sounds like a Lifetime Channel movie!
It's interesting that you quit bidding when the auctions went online. I came back strongly to liens a few years ago because they are online! Even though I live in IL, I invest a lot in AZ liens. Mainly because most AZ lien auctions are online.
As for "bots" - they're not needed to get all the bids loaded. The banks can use a spreadsheet to load all their bids at one time days before the auction ends. You can see the total number of bids entered for each lien - but you can't see at which interest rate those bids were made for the lien. So if I see a lien has more than 100 bids, then I know a fund or bank has bid.
I can tell you the institutions and even some partnerships take advantage of "sub accounts" in the AZ auctions. It works like this;
if you were to open an account to bid on liens, you can have one account for each Tax ID you have. Most people only have their Social Security Number (SSN) as their only Tax ID. So you would have one account in the auction.
If you have more than one Tax ID, then you can open a sub account. Banks, funds, and partnerships will open several sub accounts using the SSNs of all the investors. Some use TINs of their business or FEIN numbers to open sub accounts.
Thus, a bank could have 200,000 sub accounts used to bid. The rules limit you to bid all subaccounts at the same interest rate for a lien. So the bank would have to pick one interest rate and then bid all 200,000 accounts at that rate.
The advantage for the bank is that the lowest bid wins. If I have one account and I bid 5% and I tie with the bank who also bid 5%, then the auction software has a program that randomly picks a winner from all the accounts that bid the lowest rate. I have one account, the bank has 200,000 accounts. The odds are against me.
However that rule also helps me because with my past history of bid data, I know where the banks usually bid. Plus, all the liens are not sold at once. They close about 400 liens every hour. So I can see what the bids were in the first batch and see where the huge number of accounts were bidding at.
I found that most banks pick one interest rate and then any lien they bid on, is bid at the same rate. If I see in the results of the first batch that closes that somebody is bidding 200,000 accounts at 5% for several liens, then I know any bids I have in open batches I would need to modify to lower than 5% or cancel if I want a higher rate - but only on the liens where the total number of bids is very high.
Here is what you see before the batch closes:
So I can see this lien has a huge number of bids (over 400,000) You would think all interest rates were bid on if there are that many bids.
But as I said, most financial institutions bid on all liens at the same rate. So after the auction is over you can go back and view where all those bids were placed.
Here is the actual bid distribution for that lien:
So you can see that 4% had the most bids, another institution bid a large number of accounts at 5%, and even 7% had another institution bidding. But the other rates only had a handful of people bidding. Nobody bid 11%, 12%, 13%, 14%, 15%, 1% or 2%. And you can see the winner came from one of the 7 bids at 0%.
Not all liens have hundreds of thousands of bids. Most have under 100. But when you see a monster number of bids, you just need to learn to adjust any bids after seeing what the big boys bid in the first batch.
Specialist · Phoenix, AZ · Member since 2011 · 698 posts · 629 votes
13y
Just started looking at Coconino county in Northern Arizona auction results. Same thing as Yavapai; huge jump in number of bids in 2013 compared to 2012.
Total Bids placed;
2012 - 2,495,613
2013 - 54,255,890
Total # of liens sold;
2012 - 1,100
2013 - 1,220
Total $ of liens sold:
2012 - $1,818,981.23
2013 - $1,868,433.33
Average Interest Rate per lien paid:
2012 - 9.79%
2013 - 6.83%
Investor · Tucson, AZ · Member since 2013 · 116 posts · 22 votes
13y
i always do research on why they bid zero, sometimes it's a relative's house . . . many mining claims went to zero one year i went, other years no one bought mining claims, guess 1600/oz gold is an incentive, many I see mining claims sell well on ebay.
Specialist · Phoenix, AZ · Member since 2011 · 698 posts · 629 votes
13y
Just started looking through Pinal County Arizona recent online auction results. Now this is more like past years in the other counties. I don't have 2012 results for Pinal county to compare, but the number of bids and interest rates are what I had seen in the other counties in the past.
This tells me the institutions did not participate in Pinal as heavily as the other counties.
Total dollars of liens sold: $6,791,144.22
Average interest rate: 9.86%
Number of liens sold: 4,340
Total number of bids for all liens: 48,418
Top ten bidders by total amount invested:
How about that top bidding fund. Almost $1.5 million at 15%. I'll take that kind of return. Haven't looked to see the quality of the underlying properties...
Camarillo, CA · Member since 2013 · 9 posts · 3 votes
13y
Jerry K., you seem to be a wealth of knowledge on the subject of tax lien investing. I enjoy reading your posts. A question I have for an experienced tax lien investor such as yourself: Why don't more investors but OTC tax liens after the auctions are finished? Aren't investors who purchase OTC liens guaranteed the higher interest rates? I realize the underlying properties may not be as good as those that go in the auction, but if I'm just looking for a 16% return (in Arizona), wouldn't OTC's be the way to go?
Real Estate Investor · Saint Petersburg, FL · Member since 2013 · 1k+ posts · 951 votes
13y
That definitely is a better return than you'd see around here. It's all the big institutions bidding them all the way down.....anything that isn't a vacant lot is usually bid down to 0.25% (the minimum actual interest is 5% though so if you bid it down to the 0.25% your rate is still 5%. You can also bid 0% and then in that case you will actually get 0%. I might do some data mining on last year's results after looking through what you posted here to see if I can find any type of good opportunities.
Investor · Tucson, AZ · Member since 2013 · 116 posts · 22 votes
13y
ones that didn't sell at auction are usually junk vacant lots (selling on ebay for little more than they paid for them) in bankrupt subdivisions, undersized lots that can't be built on, have many liens, are not worth the back taxes.
Dallas, TX · Member since 2011 · 308 posts · 59 votes
13y
Jerry K.
This is a great thread. Thanks for taking the time. I have a bunch of questions.
1. What is your plan for the properties with 3 years delinquent taxes? How likely is it that someone will come next year and buy you out?
2. What factors do you use to determine whether it would be more profitable to buy the subsequent year's lien or have someone buy it out and get a check?
3. When you, as the lien holder, get first crack to purchase the subsequent lien, is it at the full 16%?
4. Have you ever foreclosed before? I assume once you foreclose, you can either sell as is or rehab and sell. Going in with the intention to foreclose seems risky but also seems like it can pay off big. This leads to my next question.
5. What do you typically see happening with liens that have 4, 5, 6 years? I would guess big institutions wouldn't touch these as their strategy is centered on collecting interest. So if you did bid on these, it would have to be with the intention of foreclosing.
Specialist · Phoenix, AZ · Member since 2011 · 698 posts · 629 votes
13y
Greg W. Glad to see a new Biggerpockets member interested in tax liens. Rachel pretty much nailed it with her answer. Most of the OTC liens are picked over properties that either are not worth the amount of taxes you'll pay plus foreclosure costs, or they have issues like tied up in bankruptcy, EPA issues, small strip of land or landlocked. I've seen parcels that were IN a lake. Not the shore, actually in the lake.
Of course having said all that, there are some gems that slip through. I just found a luxury home in Palm Beach County Florida that at the time of the tax lien sales was in foreclosure. Nobody bought the lien. Now the OTC sale is going and the bank took possession and has it under contract with a buyer. So you can buy the lien (around $17k) and get the Florida 5% minimum interest rate for only holding it a few weeks. There is still risk - the sale may not happen. But you earn 18% or get the minimum 5% if it sells before you would at least 5% of the 18%.
And I expect that last paragraph confused you. Since you are new to tax liens, rule number 1 is - learn the rules of the state/county you are investing in. They all differ and you have to know the rules to understand what and how to invest in liens. I know a little about many states, a lot about only 2 or 3 states.
Specialist · Phoenix, AZ · Member since 2011 · 698 posts · 629 votes
13y
Bryce Y.
Originally posted by Bryce Y.:
1. What is your plan for the properties with 3 years delinquent taxes? How likely is it that someone will come next year and buy you out?
I plan on foreclosing on some of the properties with 3 years of tax liens on the books. For the remaining, if I let them go back into the auction, it's hit or miss on if they would be bought by someone else next year. Some had other bids, some didn't have other bidders last year. They're decent parcels of residential vacant land, and as a group they're worth something to a builder who wants to bank some land. Individually, they would be a hard sell in the current market.
Lots of variables for this decision. How valuable is the underlying property, has the market tanked or held steady since the I bought the lien at the auction, do I need cash now, has my strategy changed, etc.
In Arizona you get the same rate on subsequent taxes that you receive on the original lien you bought. If you won with 7% then if you buy the sub taxes, you get 7% on the sub taxes lien. Other states are different.
This is the first year I'm foreclosing in AZ. Since everything is vacant land, I'm looking to bundle a bunch and sell to a builder. I'm not one to rehab a property or be a landlord at this time. I never go in expecting I'm going to get a property. Doesn't mean I don't think about it, and I have bid on beautiful properties just to say I had a chance, but I never expect to get a property from a lien.
Liens with several years (more than 4 years in AZ) on the books are not something I look at. My guess is the property is junk or it would have been bought up. Or there is a long drawn out bankruptcy taking place. Institutions usually would stay away too.
There is a luxury golf course community that had several residential tracts go in a lien sale last year. The taxes on the vacant land parcels was pretty high based on the appraised value of the land. High lien amounts for a single year on one parcel don't get a lot bids - so the competition is lower and the interest rate can be near the top.
But all these properties are part of a bankruptcy that has been dragged out for a few years. Sometimes the courts reduce the amount the tax lien holder gets so the risk is too great for the amount you have to put in. By the way, there was one bidder for those liens so that person is earning 16% on probably $80k. Nice payoff if it works out, but too risky for me.
Professional · Lexington, MA · Member since 2013 · 45 posts · 6 votes
13y
Jerry K.
Great posts. Glad to see there is at least 1 person who has detailed knowledge about tax liens. Great data as well. Is this data publicly available to all or just to participants in the auction? Is this data available to all states or just AZ?
thanks
