Tax Lien buying: How to minimize buying risks...

Camarillo, CA · Member since 2013 · 9 posts · 3 votes

Hey gang, novice investor here looking to gain some wisdom.

As I understand it, Tax Liens pretty much take priority over ALL other liens a property may have against it EXCEPT for IRS liens. My question is, how do you KNOW if a property HAS an IRS lien against it? Where do obtain that information? Also, how do find out stuff like:

1. What the zoning of a given property is? (Residential, Commercial, etc.)
2. If there are any hazards on the property that need to be dealt with (toxic waste in the back yard, as an extreme example.)

I just want to know what kind of checklist you savvy tax lien buyers out there use to ensure your purchases have minimized risk as much as possible.

Thank you in advance.

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Joel OwensBusiness Member

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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes

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First step is to determine WHERE you want to buy the tax liens??

The process and returns and time lines vary by state. Before you do anything else you need to do that step.

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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
13y
First step is to determine WHERE you want to buy the tax liens??

The process and returns and time lines vary by state. Before you do anything else you need to do that step.
Podcast Guest on Show #47
NNN Invest53 Reviews
Website View Page
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Ned CareyPro Member
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Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
13y
Originally posted by Greg W.:
Hey gang, novice investor here looking to gain some wisdom.
As I understand it, Tax Liens pretty much take priority over ALL other liens a property may have against it EXCEPT for IRS liens. My question is, how do you KNOW if a property HAS an IRS lien against it?

I don't know and I don't care. I buy 100-200 liens a year. I have never run into an IRS lien. Even if there is an IRS lien it is unlikely you would ever loose your principal. Much more likely risks are bankruptcy and fire.

With a bankruptcy again you will not likely lose principal but a judge could reduce or eliminate your interest. It has never happened to me. The bigger concern in Bankruptcy is it ties up your money and you cannot proceed with your foreclosure case.

Fire is perhaps the biggest risk becuase your lien could wind up being secured by a bundle of burnt up sticks. You could buy insurance but likely not cost effective. It is just a risk you have to accept. I have only once had a fire and that property redeemed.

I don't care, I only care what the value of the property is. If the lien is secured by a property much more valuable than my lien or bid amount it really doesn't matter what the zoning is.

I avoid bidding on industrial properties. If you only bid on SFH most of that type of risk goes away.

You bid assuming the worst. There will be problems with properties you wind up acquiring via tax sale. You have to bid given that there are risks that are unknown. The number on thing I do is inspect the properties I am bidding on. I will inspect over 1000 properties before the Baltimore City Tax Sale.

Good luck - Ned

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Jerry K.
Specialist · Phoenix, AZ · Member since 2011 · 698 posts · 629 votes
13y
Greg W. In addition to the great advice of Ned and Joel - if you really want to look up EPA type issues you can go to the EPA website http://iaspub.epa.gov/apex/cimc/f?p=255:63 or just search "Cleanups in My Community" in Google and you'll get the link.

If you're participating in online tax lien auctions, every online auction I have looked at has a link the County website that shows things like how it is zoned. There may be online auctions that don't have it so always look through the auction site. Many of the lien lists will have that information too.

It's the wild west out there and each county is different. Find out where you want to invest, learn the local rules for the auctions (bidding, payment, processing, etc.) Then look into what resources the county has online or in their county office for you to execute your due diligence.

I highly suggest investing in areas you know very well to start.
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Greg W.
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Camarillo, CA · Member since 2013 · 9 posts · 3 votes
13y
@Ned Carey and @Jerry K.

When you guys invest in Tax Liens, do you do so within an IRA you have or do you just invest in them outside of any tax protected shelter and just incur any capital gains taxes? Any recommendations there?
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Ned CareyPro Member
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Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
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Greg W. I use my own money in my IRA. I partner with others and get earned income outside of my IRA. - Ned
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Jerry K.
Specialist · Phoenix, AZ · Member since 2011 · 698 posts · 629 votes
13y
Greg W. I use both 401k rollover money and just regular taxable funds.
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Junior Salters
Rental Property Investor · Spartanburg, SC · Member since 2013 · 253 posts · 56 votes
13y
Ned Carey Do you invest in just local tax liens or ones in other states? Do you do online or physical auctions? How do you do your due diligence in terms of properties you are buying? I know sticking to SFH is best, but what about getting stuck with a bad neighborhood?
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Ned CareyPro Member
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Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
13y
Junior Salters, Currently I only invest in local tax liens. I know the law and can physically inspect any liens I want to buy. One reason I am successful is I work harder than most. I will look at 5,000 liens before the Baltimore City Auction.

The laws vary tremendously by state. I like to know the law so I can use it to my advantage.

One reason I only invest here is I am able to effectively place all my money here. My pool of investors has grown a little this year and I am considering Washington DC as a possible expansion opportunity.

I am an expert in in Maryland law and how tax liens work here. I can use that knowledge to do some pretty incredible things. I am able to make money on deals where I don't even own the lien.

Why do you say buying SFH is best? If you had the opportunity to make $200K on a commercial building would you pass it up because it is not a SFH?

Why would you get stuck with a bad neighborhood. Don't bid in the bad neighborhoods. That is why I look at 5,000 properties before the sale and why I do not bid out of state.

Good luck, - Ned
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Junior Salters
Rental Property Investor · Spartanburg, SC · Member since 2013 · 253 posts · 56 votes
13y
Ned Carey Thanks for the info Ned. In Maryland how do you get your hands on what will be auctioned before the atcualy auction?
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Ned CareyPro Member
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Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
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Junior Salters most counties in the area are online

Search the various county websites. Last year the company handling most of the sales really screwed up so I am sure some counties have changed.

Here is Howard county for example. It looks like you just email n your bids.
https://taxsale.howardcountymd.gov/ Howard county registration deadline is today.
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Jeff Kehl
Rental Property Investor · Charlottesville, VA · Member since 2012 · 1k+ posts · 726 votes
13y
Regarding the IRS lien question, I actually bought a tax deed on a house that has a possible IRS lien on it so I know a bit about it. When I looked at the former owner's name I recognized him as a high profile individual who had been busted for drug traffiking.

The state superior court system of Georgia maintains a website called www.gsccca.org that allows you to search for liens against property or people. It's subscription based and costs $30/month. I imagine most states have some version of that.

IRS liens are against a person so I searched his name and they have a lien against him for several hundred thousand. However, he also owned a lot of very valuable property around town far in excess of that so I'm not sure what will happen.

The house I bought was basically worthless, stripped copper plumbing and electrical, trashed. I'm spending about $20k to rehab it and keeping good records in the hope that if they do try to come get it from me they would reimburse me those costs.

I've found that most lawyers I've asked about this really don't know unless they specialize in this kind of work so you just have to take some calculated risks...
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