Posts Tagged ‘tax sale homes’

Before you can do any of the methods we talked about in previous posts, you are going to want to spend some time and some money in cleaning up the property. You never know what the interior structure will be like until you actually go into it (we had one property that had a dead body in it – that was a bummer).

In most cases you are going to want to do some painting and in some jurisdictions you will have to bring the property up to code before you can sell it. Interestingly enough, in some of those jurisdictions, you can rent it without bringing it up to code. If you are fortunate enough to have tow or three properties that you take to deed, you want to hire a local contractor to do the fix up work.

In my experience, a very large percentage of the single family residential properties that we took deed to were rental properties. Right after you insure it you inform the tenant that the rent check will now be made out to you, and you ask them if they are interested in buying the house if the terms are right. We sold a number of houses to the tenants on “contract sales” or where we carried the paper.

The tenants know the house, they are already living there so they have no moving expense – in fact, and they avoid moving expenses they would incur if you sell it to someone else. The other nice thing is that the tenant that buys the property seems to take care of it than when they were just a tenant. Since you still have an interest in the property, this is important to you.

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Join us Monday,  December 14, at 9:00 PM Eastern Time

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I want to invite you to a FREE online Tax Sale workshop Monday,  December 14th, at 9:00 PM Eastern Time. At the workshop, you’re going to discover how to get started with tax liens and deeds in the quickest, easiest way possible and make money in as little as 30 days, even if you don’t have a lot of money to invest right now.

And because it’s a LIVE online workshop, you’ll be able to ask questions throughout the event.

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How To Start Buying Tax Liens and Deeds With Less Than $500 And Still Make Very Good Money…

The 3 BIGGEST trends for Tax Sale properties in 2009… and how YOU can use them to get ahead of everyone else trying to get in on this hot market right now…

How a 65 year old retired man on Social Security made over $157,326 in 120 days, starting with just a $900 investment – and how you can too…

How to make a Full-Time income, while only working in your spare time from home…

How to buy yourself a house for less than $1,000…

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This Online Workshop is absolutely free, but you must register NOW to lock-in your spot and get the special phone number and website page.

Almost every tax sale workshop we’ve ever done has been completely BOOKED SOLID, so if you want in – please register immediately.

A third method is the “rent to own” program where you rent the property to someone with a portion of the rent going toward a down payment – after a period of time you have receive your down payment and now you carry the paper for the buyer.

You have more than gotten your money out of the property through rent and the down payment and still have an interest in the property.

Another prospective method of disposing of the property is to donate the property. You need to talk with your accountant about this, but it would seem to me that you can probably get credit for the market value of the property when making a donation.

Somebody like Habitat for Humanity would love to receive the property (as a side note, Habitat for Humanity has been a bidder at a number of tax sales that I have attended).

I am not a tax expert and I would assume that you would have to get an independent appraisal for the value of the property, but it might be a very nice donation on an after tax basis, if you have the need for a write off.

A second method of selling the property is a a “contract sale”, where you retain title to the property until the contract amount has been paid. Again, here you are the one who determines if you make the deal or not – because of this you have a wonderful amount of latitude to what you do.

I have a friend who has bought tax liens in Indiana for over 25 years. He has properties he acquired from tax liens that he has sold on contract three, four and five times. 

What has happened is the people have defaulted on the contract, moved on, and he has sold the house on a contract to another party. They move, or get transferred or just walk out, and he sells the house again.

Because he has so little invested in the property he can accept deals that he would not otherwise consider.

NEXT POST: Third Selling Method

The first thing you should do is insure the property.

Up until this point in time you have not had an insurable interest in the property. (you had what is known as an inchoate interest – meaning a future interest). Now you do, get some insurance so if something happens you don’t’ loose your investment. You want, if possible, to get insurance for the replacement cost – otherwise they may try to limit your recovery to what you paid for the lien, and that would not make you happy.

The next thing you need to do is to determine what you are going to do with this piece of property, there are several choices, all of which should be evaluated.

1. You can sell it
2. Rent it
3. Do a contract sale
4. Trade it
5. Live in it
6. Donate OR
7. Ignore it

Any of these can be good decision, other then the last one.

If you are planning on selling the property, you need to decide what type of sale you want to do. A conventional sale, where the buyer goes and gets their own mortgage.  is very clean, but may be more difficult with a tax lien property.

Most of the properties you get in a tax sale are in lower income neighborhoods and although, red lining is not supposed to exist, you may find your buyers have difficulties getting financing because of the area or because the property has come from a tax sale.

There is a ready solution for you that you should be able to do and make a substantial additional amount of income – provide financing for the buyer yourself.  Since you bought the property for probably less than 20% of the market value, you can ask the buyer for a small down payment and set up a mortgage for them yourself. The benefit of that you can determine who you sell to and what rate you receive. The disadvantage is that you now are in the mortgage business, which may not be what you desire.

NEXT POST: A Second Selling Method

I would like to take a moment and discuss the subject of lawyers. Much maligned in our society, they do in fact, provide some valuable services.

If you are going to be active in tax sales, especially tax lien sales, you want to have a good lawyer. I have emphasized this in several posts that you should have a good lawyer who knows tax lien law.  I will go beyond that say you need a good lawyer in every state you buy in.
 
How do you find a good one?

When we were starting up the tax lien operation at Kidder-Peabody in the early 90s we found them from the folks at the court house who dealt with them each day.

1. I would ask the Treasurers’ chief deputy, or someone in a similar position. “Give me the name of a lawyer who knows what he is doing in tax liens” – I only had one jurisdiction tell me they couldn’t do that.

2. If they tell you they can’t do that, go to the clerks office and pull the cases that relate to tax liens (applications for tax deed or cases filed to foreclose on right of redemption) and start writing down the names of the attorneys.

3. After an hour or so you will know the two or there lawyers who do most of the tax lien related cases in that jurisdiction.

When you meet with the lawyer negotiate with him and try and get a flat quote per case that he will handle. If you know it is going to cost you $400.00 per case then you can adjust your bidding accordingly. The costs vary greatly by state, and in some states you can add the legal costs to the amount owed on the lien. Of course, that doesn’t do any good if the lien doesn’t redeem, so try to keep your costs low.

NEXT POST: Once You Get Your Deed

Types of deeds

There are a couple of different types of deeds (there are probably twenty different names for them).

Judicial Deed

The best is a judicial deed, where there has been a hearing and the court has directed the Treasure or the appropriate official to deliver a deed to the lien buyer.  A judicial deed will usually give you a “marketable title”. What that means is that you can get a title insurance company to issue a title policy on the property.

Administrative Deed

The other type of deed is often referred to an “administrative deed”. IN the case of this type of deed you will have to file a “quiet title” action. This is not a major problem, since you have already done the work needed. In a quiet title you notify the parties in interest (sound familiar?) and tell them to appear if they want to claim the interest they have in the property. Since you have already notified these folks prior to applying for the deed, you should have no problem with a quiet title action.

What is important for you to know is what type of deed you are going to get. Again, your lawyer can tell you if a quiet title action is necessary. Please be aware that I have done a lot of transactions where I got a Treasurer’s deed and did not get quiet title and was able to sell the property using a quit claim deed. This will really depend on the sophistication of the buyer and whether they intend to resell the property in a short period of time or hold the property for a number of years.

The most important thing about going to deed is Notices. It is the notices that are going to determine if you have an easy hearing on getting deed or a difficult one. 

Please make sure you have done your notices correctly. Depending on the jurisdiction, you may have to go to court and testify.  In some jurisdictions, your attorney can do everything and you won’t have to appear.

NEXT POST:  Attorneys

When do you do all of this?

The answer will vary by jurisdiction, but I do it before I start spending money on title searches, attorneys, or noticing. If, under the statues you are working under, this is six months or so before the end of the redemptions period, you are going to want another quick drive by before you actually file for the deed. Make a second review a part of your procedure and you will save yourself some money?

How do you go to deed?

This will also depend on the jurisdiction, but the basic procedures is as follows.

1. First you have to notify everybody who has an interest in the property , review posts on notices http://bit.ly/3dolug
3. Second you are either going to apply for a tax deed OR
4. You are going to foreclose on the tax lien OR
5. You are going to foreclose on the “right of redemption”.

This is when you really do need a lawyer. All of these actions will take place in a court of law, or they will have to go through a court hearing, and there is zero tolerance for mistakes. You should have established a relationship with an attorney long before this, but if you didn’t – GET ONE NOW.

There are a few jurisdiction where it is required that a lawyer be involved (although you can appear “pro se”) it is very strongly recommend that you hire a lawyer.

NEXT POST: Types of deeds

My Suggestions

Review the task lists for due diligence (see posts October 26 and 27 http://bit.ly/8AwLAw) and do it all over again, at least the part about looking at the property. If the property is in another state then hire an appraiser to go by the property (he can not go on the property) and give you his opinion as to what it might be worth.

If he says it is worth $1,000.00 and it is going to cost you $2,500.00 to go to deed, then you have your first write off.  Maybe you might want to try and find a buyer for the lien at this time, but I find that unethical so I just bite the bullet and chalk it up to experience (boy do I have a lot of experience).

Relax, although I have a hundred horror stories; remember I have purchased several thousand liens. In most cases you will find the property may have deteriorated a little, but it still has some value. The point I am trying to make is “you need to find out the facts.”

Although I do not buy environmental “hot spot” reports doing my regular due diligence, I would suggest spending a little money and make sure there are no environmental problems. The reason is very simple, once you become part of the “chain of title” by going to deed; you are responsible for the clean up cost.

If the property is my abandoned lead battery factory (that I purchased), you could be looking at a couple of million dollars of clean up costs. I don’t thin you want that! You might want to talk with the assessor’s office and see if they know any negatives about the property, for example – next weeks it is going to be demolished.

NEXT POST: When do you do all of this?

Going to Deed

The lien you purchase one, two, or maybe four years ago has not redeemed.  The redemption period has just about run out. You are about to hit the jackpot and get a property for the cost of the taxes. What Now?

What do you want?

The first question you need to ask before you spend one more cent on notices or attorneys or anything else is “Do I want this property?” The answer seems obvious, of course I want it, how could I not want it – I am getting if for the cost of the taxes, how could I go wrong?

Let me give you a simple statistic – about half of the liens that do not redeem are never taken to deed. Why is that? Are the lien buyers just absent minded? Did they forget? Maybe some of them did, but a large number of the liens didn’t go to deed because the lien buyer didn’t want the property.

What are the reasons they didn’t want the property?

Well, in my opinion, the main reason is tat they shouldn’t have bought the lien in the first place. They made a mistake and now they are paying for it by writing off 100% of their investment. But since you are going to follow due diligence suggestions this will hopefully not happen to you.

But be aware, there is no lien buyer who has purchased more than just a few liens who has not written off a lien purchase. It will happen, because over time real estate can change.

The house may have burned down.

The commercial property may have had an environmental incident, (I love that term, they spilled 2,000 gallons of PCBs on a property and it is an “incident”).

The taxing jurisdiction might have demolished the structure in the ensuing time period (Oh yes it happens).

The cute little bungalow you bought the lien on two years ago is the local gathering place for the merchandising of “controlled substances”.

There was this little sink hole that developed and the property was swallowed.

The local chapter of the “Hells Angels” now use the house for their headquarters (go ahead, you evict them, me I’ll pass).

Believe it or not, everyone one of these incidents have happened to me!

The point of all this is very simple, at that time when you are going to be spending more money on the lien for title searches, noticing, lawyers or whatever, you want to take another look and decide, Do I want this property?”

NEXT POST: My Suggestions