Tax Liens and Tax Deeds - 

Some Basics for Your Success

By: Darius M. Barazandeh, Attorney at Law / M.B.A.

We have all heard the stories and heard the claims about tax foreclosure sales. You know the stories where someone purchases a house or property for $1,000 dollars with a true market value of $50,000. They then turn around and sell it for a huge profit. In fact everywhere I turn someone is talking about the wonderful purchase opportunities that tax sales and tax liens can hold. Before I started investing in tax sales my first question was, “If this is such a great investment technique, why is it that I have not heard about it? There has to be a catch, something that no one was telling me about this technique.” The truth is that you can gain a very favorable return by purchasing tax lien certificates and tax deeds, but as with everything you need to learn from other people’s knowledge, use common sense, do your research, and stay positive!

The General Tax Sale Process

Almost all states allow for a tax sale foreclosure process that allows common citizens, just like us, to purchase tax sale properties. Here’s how it happens:

If an owner of real property does not pay their taxes the county or the taxing entity will file a lawsuit to collect the unpaid taxes, and if such taxes are not paid, the property will be sold at a public tax auction to the highest bidder.

The certificate or tax deed will be sold at a public auction and the opening bid will typically be made up of the amount of back taxes owed. This amount will usually be made up of:

• Delinquent Property Taxes
• Interest Charges
• Penalty Fees
• Legal Costs
• Administrative Charges and Fees

When a tax certificate or a tax deed is sold, the purchaser acquires the rights held by the county or taxing unit. Tax sales may be held annually, semi-annually, quarterly, or monthly. There are no restrictions for bidding in these sales (i.e., you do not have to be a real estate agent, professional investor, etc.); however you usually must be able to pay the bid amount within a short period of time.

For a specified period of time the delinquent owner has the right to buy back or “redeem” the property. This is called the right of redemption. In many cases this redemption period may be as short as 6 months or in states such as South Dakota and Wyoming, as long as 4 years. If the delinquent owner does not redeem the property during the specified time, then the successful bidder is entitled to the property regardless of the purchase price. Let me say that again: the successful bidder would be the owner of the property even if it was bought for $1,500 and it has a market value of $150,000!

That sounds great, but what happens if the delinquent owner decides to exercise their right of redemption? Do I lose my deal and all the money I spend at the action? No not at all! In that case they (the delinquent property owner) must pay you an interest penalty charge on top of what you originally paid for the property. This interest charge could be from 10% to 25% (for redemptions occurring during the first year) or up to 50% (for redemptions occurring during the second year). What this means is that you will get back the money you originally invested plus the interest charge while the delinquent owner will get their property back.

So in most cases either you purchase real property for pennies on the dollar or gain a high rate of return on the money you used to purchase the property!

Here is list of the returns paid out at redemption for various states. Remember redemption refers to the statutory or legal right for the original owner to buy back the property.

SELECTED STATE	REDEMPTION RATE
Alabama	12% per annum
Arizona	16% per annum
Florida	18% per annum
Georgia	20% first year 40% second year
Iowa	24% per annum
Kentucky	12% per annum
Mississippi	18% per annum
Nebraska	14% per annum
North Dakota	12% per annum
West Virginia	12% per annum
Texas	25% first year 50% second year

Let’s look at an example so you can clearly understand how the redemption return works:

George attends a tax foreclosure sale and he is the successful bidder. He files the deed with the County Clerk or Recorder’s Office. Four months after the deed is recorded the delinquent property owner “redeems” the property. George receives his initial investment back plus 25%!

Here you can see that George was the successful bidder on the tax sale property and he received a tax deed at the auction (more on the difference between deed states and certificate states in a later article). Also note that since the original owner redeemed the property she must pay George the original amount invested plus the state mandated penalty return.

 

What Happens If the Owner Does Not Redeem?

If the property owner does not redeem you will typically get title to the property. That’s right title! Remember what I said above: If the delinquent owner does not redeem the property during the specified time period then as the successful bidder, you would be entitled to the property regardless of the purchase price. Let me say that again: you would be the owner of the property even if you bought the property for $1,500 and it has a market value of $150,000!

 

Alright…But What Kind of Deals Are Out There?

Tax auctions can allow you to buy some pretty substantial real estate for pennies on the dollar. Let me show you some examples from my state of Texas that went to sale last year:

 

Tax Sale Listings from Harris County:

Precinct Number	Case Style	Judgment Date	Adjudged Value	Estimated Minimum Bid
1	HOUSTON INDEPENDENT SCHOOL DISTRICT, ET AL VS. LOUIS ZINGELMANN, ET AL	06-JUN-2001	$3,000.00	$3,000.00
7	HOUSTON INDEPENDENT SCHOOL DISTRICT, ET AL VS. ROBERT P NORMAN, ET AL	26-JUL-2001	$31,000.00	$9,053.98
4	CYPRESS-FAIRBANKS I.S.D. VS. 8916 TAUB ROAD INC	16-MAY-2001	$76,230.00	$19,127.75
5	HARRIS COUNTY VS. HOMECRAFT LAND DEVELOPMENT INC	22-JUL-1998	$96,400.00	$32,332.24
6	HOUSTON INDEPENDENT SCHOOL DISTRICT, ET AL VS. G L PARR, ET AL	07-JUN-2001	$12,500.00	$6,334.85
5	CITY OF HOUSTON, ET AL VS. TUDOR PROPERTIES INC.	25-JUL-2000	$173,090.00	$8,415.61
6	HOUSTON INDEPENDENT SCHOOL DISTRICT, ET AL VS. DELORES SALAZAR	16-JUL-2001	$8,800.00	$5,974.58
7	HOUSTON INDEPENDENT SCHOOL DISTRICT, ET AL VS. HERMAN WHITE	01-AUG-2001	$26,000.00	$13,269.40

Can you figure out why I shaded some of these property listings? These would obviously be the best deals to investigate and start researching immediately.

 

Word Of Advice

The shaded deals look great, right? Yes, they sure do but you MUST realize that tax sale listings can be fairly complicated to understand and read correctly. I have run across situations where the significance of one just number before a dash or hyphen can make or break the WHOLE deal! So I want to warn you that nothing comes without its hard work and proper knowledge. For every good deal that you find there are 100 that stink! The best route for the new and experienced investor is to keep learning, asking and researching new opportunities. Always invest in your education and find the right mentors.

 

Don’t Ever Stop Learning and Never Give Up

No matter what happens you should never give up on learning or give in to the dark riders of failure and fear. Did you know that fear motivates more human action than any other emotion combined? Sadly fear stops many people from trying to learn new things. And you know I don’t blame them! Sometimes it’s really hard to keep learning and growing when you always seem to get knocked down.

I got knocked down a bunch of times then decided that I just had to find a way to make things work. I started to change my mental attitude and think only positive thoughts, see myself doing the things I was destined to do, and completely fulfilling my purpose in life. I decided to go forward regardless of the cost, regardless of the fear and learn new ways to earn income and new ways to help others.

I realized that the more I learned about investing the safer my financial future would become and the more I would be able to enrich the lives of others. I thank everyone for reading my article and being interested in tax sales. Proper information is important so always ask the right questions and find real mentors who have a passion to help.

Don’t forget that this is just information. The real wealth is inside us all. It comes from the power of our minds. So let’s open our eyes to all the new things in front of us, let’s open our hearts to the person we were born to become and towards bright prosperous lives of abundance. Applied faith and knowledge are always your first two steps!

To Learn How to Get Started Today in Texas: Texas Houses for Pennies™

To Learn How to Get Started Today in: Alabama, Arizona, Colorado, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Mississippi, Missouri, Montana, New Jersey, Oklahoma, Rhode Island, South Dakota, and West Virginia: Please Click Here

 

You can also email me if you have any questions: taxenterprises@yahoo.com

8 WAYS TO PROFIT FROM ONE FORECLOSURE

© 2007 by Tony Youngs

 

 

 

As I write this article, I have just returned from a foreclosure auction. I like to give the most up to date information on what’s happening in the foreclosure market. About four weeks ago, I obtained a new list of the foreclosures for the county I live in and as always, I highlighted the ones in my zip code and plotted them on a map. There are usually forty five to sixty every month in a five mile radius, this month there were forty four.  Last month there were sixty. I don’t know for sure, but there may be a decrease because I read somewhere on the internet that the government is asking lenders to avoid foreclosing unless there is no other way. If that is the case, In the future that will mean that the ones in foreclosure are the ones with no other solution, and more owners may be willing to accept offers.

 

There are several ways to contact the owners. You can send letters, call on the phone, put out signs, or pay a visit. I myself like to drive out and see all the ones in a five mile radius, and pay a visit. By doing this I find all sorts of opportunities. This has been a routine for me for the last 19 years or so. It keeps me abreast of the market. Four weeks ago I got my map and started visiting owners. I am finding more and more vacant houses than ever before. People are walking away from their houses and letting the lenders repossess them. Some of them have equity but most are financed to the hilt with 80/20 loans or second and third mortgages. At the auction today, homes were being repossessed by the lenders at a phenomenal rate and very few people were bidding. The few that were sold to third party bidders went for only one dollar over the opening bid.

 

With all these homes going back to the lenders, and homeowners walking away, we investors can provide solutions. The best way to work in todays market is to pick an area and track the properties from before the foreclosure begins until it is occupied by a homeowner,  after the foreclosure auction. Then you can stop pursuing it. There are eight ways to profit from one distressed property.

 

The first way is to contact the owner to see if they want to sell their house. Not all of them want to sell. It’s a numbers game. If they do want to sell you will know. They welcome you with open arms. Investors can buy and close quicker than traditional home buyers and the homes usually need repairs. I only buy houses from people that really want to sell. I start by asking  them if they have talked to their lender to see if they can work something out. Lenders don’t want to repossess houses and are willing to do a workout plan or modify the terms of the loan. But they can’t make it work in every situation. Then I ask if they have talked to a credit counseling agency such as CCCS. I offer a phone number to a helpline so the owner can see if they can help. If the owner has sufficient income, the helpline may work but not for all.

 

In my experience, I have found that modifications, credit counseling, and bankruptcy doesn’t work for everybody that is going through foreclosure and a lot of homes are lost. If they have tried those options and it didn’t work out, or if they they would rather not do those things, I make an offer.

 

A second way is to learn how to do loan modification packages for them. A homeowner can talk to their lender about a modification without our help, but you would be surprised how many don’t or won’t. They want someone to do it for them or they have never heard of it. If an owner doesn’t want to sell the house, perhaps you can assist. The bank does not want to foreclose on them or repossess the home and if the owner qualifies, the bank can modify the mortgage. The owner needs to gather a lot of financial information and they may want your help in doing so. I have seen some owners get turned down and I have seen owners who couldn’t keep up with the new plan and went back into default.

 

A third way to profit and create win win win solutions is to learn how to do short sales and lien discounts. Even real estate agents should learn all they can about them. I am seeing more and more owners list their homes while in default and theres no equity.  The lenders don’t want to keep repossessing houses with no equity. A large majority of homes in foreclosure have no equity and the lenders are willing to discount the balance of the loan so owners can sell before the auction. I believe you will see short sales get faster and easier over the next few years. Why? With the subprime collapse and the increase in foreclosures nationwide, the slow market, and the fact that investors are paying less at the auctions, the lenders are finding it in their best interest to discount these loans before the auction to cut down on the amount of repossessions. It is better for them to take less cash before the auction and then they can lend it out to produce income rather than sit on a property that needs repairs and has no equity. The main problem is the homeowners must be willing to sell their homes. I have been to auctions in other states where the lenders were opening the bid at much less than the balance to get the house sold. A short sale on the steps. Although short sales have been around for years, It will payoff to continue educating yourself as the lenders change the way they process them. They simply don’t have enough staff for the workload.

 

A forth way is to learn how to buy “notes and mortgages” There always has been and always will be homeowners that won’t cooperate. They won’t sell their houses and won’t work with the lenders. They don’t want what you have to offer. Then there are the many who walk away and can’t be found. This is where you can offer to buy the loan before the auction. Lenders sell loans even when they aren’t in default. How much more would it help them to sell a defaulted loan to keep from repossessing a property.  You buy the loan at a discount but it keeps its face value.

If someone bids you get paid, if not you get the house at a discount.

 

A fifth way is to buy it at the auction. If you have been tracking a property and you have not had any results from the first four, go to the auction. Bid on the houses that have equity and keep track of the ones that go back to the lenders. Make sure you know what you’re doing when buying on the steps. Make sure you bid on first mortgages and not seconds or thirds. Make sure there is not a tax deed or certificate and make sure you have done a thorough title search. Remember you are buying in as-is condition and you usually don’t get a chance to inspect the property. Let the buyer beware. There are no friends on the steps.  About eight out of ten houses that get cried out on the steps, don’t get sold to third party bidders. They go back to the lenders, which brings me to number six.

 

The sixth way to profit is to buy these houses after they go back to the lender. I think I can safely say that only houses with no equity get repossessed by lenders.

If they need repairs like most of them do, the lenders have to spend money on repairs that the property doesn’t give back. They list them with real estate agents and pay commissions also. A few years ago while the market was booming, that was not a big problem but today it is. Learn how to present offers with logic and reason. You can get great deals if it makes sense to the lender and  is in their best interest. I submit data and documentation with my offers to show how it is better to sell in as is condition than to lose more money by hanging on. There is no shortage of lender owned properties to make offers on.  I’m in the due diligence stage of  a package deal from a lender where they have 54 properties for sale but you must buy all or none. Their asking price pencils out to $26,000 per property and the majority of them have an after repair value of $80,000 to $100,000. I suspect we will see more of these types of package deals in the future.

 

The seventh way to profit is to continue to follow up on the properties that went into bankruptcy before the auction. The bankruptcy process will stop the foreclosure for a while until the case is settled.  More often than not, a property eventually gets released and ends up heading for foreclosure auction again. If you continue to follow up you will have an opportunity to make an offer before it gets published in the foreclosure list or legal notices.

 

The eighth way to profit is the “Hidden Market” The hidden market is how to find homes that may be heading for foreclosure but are not published in the legal notices yet. There are no for sale signs in the yard, no ads in the paper, nobody even knows these properties can be bought. Statistics say that out of one hundred of your neighbors, four to seven of them are three months behind on their house payments.

That’s only part of the hidden market. There are many more hidden opportunities that you discover while working and tracking the foreclosures in a confined area.

 

If you have ever thought there is too much competition in the foreclosure business it is probably because you have only sent letters.  If you learn to work the eight ways to profit, you will always have a steady stream of opportunity and you will beat the competition if there is any.   

 

Tony Youngs is an investor/mentor and the author of the 8 ways to profit and the “Hidden Market”system.

 

 

 

 

Buying Property at Foreclosure Auctions Can be Risky
© 2007 by Tony Youngs

If you have attended a foreclosure auction and you don’t quite understand what is going on, maybe this article can shed some light. The first thing you will need is a list of properties that are advertised to go up for auction. You need to obtain a copy of the "foreclosure legal notices" for the county where the auction is that you attend. For instance, for Dekalb county, the legals come out on Thursday in the "Champion". For Cobb County, get the Friday edition of the "Marietta Daily Journal". Fulton County is the "Fulton County Daily Report" Etc. I maintain a list for all Georgia counties, Contact me for the name of the paper for your county. There are lists you can subscribe to that has all the major surrounding counties such as the Atlanta Foreclosure Report.

At the bottom of each individual legal notice, you will find the name, address and contact info for the Law firm that is handling that particular property. When you see an auctioneer at the courthouse steps, ask which law firm they represent. That way you will know which auctioneer is going to cry out the property you are interested in.

Once you obtain a list, start by highlighting all the addresses in your own zip code or surrounding zip codes. Then you want to go out and drive by the property to see what it looks like. Is it occupied or vacant, drive around the neighborhood and get an idea of the market value of the house. Are there any similar properties for sale on the same street.
If you see someone walking their dog, ask them what houses sell for in this neighborhood. You can get a list of comps from your computer later on ( Realtors, tax assessor, Zillow, etc) but for now you just need a ballpark figure.

Once you have an idea of the market value of the house, ask yourself what would you do with it if you bought it. Do you think you could fix it up and resell it. Do you think someone would buy it. Is it in a nice area, is there any signs of crime or gang activity.
Could you rent it, or wholesale it to another investor or developer. Make sure you know what to you will do with it if you bought it. How much work does it need. You wouldn’t want to do a total first class renovation on a property if all the other houses on the street are not renovated. It’s Ok to buy the worst property in a neighborhood, but you don’t want the best property in the worst neighborhood. Use common sense.

Buying at a foreclosure auction is the most risky of the many ways to buy.

You never ever ever want to buy a property on the steps without getting or doing a "Title Search" You need to know if it is a first, second or third mortgage etc., and are there any government liens especially. If you bid on a second or third mortgage, you could get wiped out. If you bought a house with a government lien you could lose your shirt. Especially if there is a tax deed against it. Also you usually don’t get a chance to do a thorough property inspection or estimate of repairs. It can be very dangerous to buy a house on the court steps and I don’t recommend it unless you have gotten some training. An auctioneer himself told me that he is not your friend and neither are most of the other investors on the steps.

If you want to do this, here are some practice exercises you can do and you can act "as if"
you were going to buy.
If the house is vacant, here is a checklist of items to look for: (remember, this is practice only)

1. If it was pouring rain where does the water go? Toward or away from the house,
If it goes toward the house or has a bad gutter system, chances are it goes in the house or is eroding around the foundation.

2. Look at the roof, Does it need new shingles? Do they look rough or are they
curling up.

3. Does it have central heat and air. Look at the outside unit and get the date off the
label on the side, If it’s more than fourteen years old it should be replaced. Figure the inside furnace needs replacing too.

4. Does any siding or wood need replacing?

5. Is there an electrical meter? If not there may be electrical problems.

6. Can you see the cabinets? Could they be refurbished or need replacement

7. Always figure in new carpet, kitchen and bath flooring and paint throughout.

8. Walk around the entire foundation. There should be a minimum of six inches between the ground and any wood. Termites can get into the wood from the ground.

9. If possible, get a contractor or someone that knows property inspection techniques to help until you know what you’re doing.

10. Be weary of houses with steep driveways, I have had trouble reselling them.

These are just common items to look at but by no means a complete inspection. In reality, even if you have a professional inspector, surprises come up. Courthouse investors must learn to analyze a deal that they may never see the inside.

If the house is occupied, contact them and see if they want to sell it. That would give you a chance to inspect it. It’s much less risky to buy from the owner if they want to sell it. If it is a tenant, Ask for the owners number but don’t discuss the situation with them, An owner won’t want to deal with you if you get their tenants upset. If the tenant doesn’t want to give you the number, say thankyou and move on. There are other ways to get in touch with the owner,
Sometimes there may be homeless people or animals in the house. Be very careful and use common sense. Don’t do anything foolish. Always use tact and common sense, and be ethical. If buying foreclosure property at a courthouse auction seems to risky for you,
There are two other ways to buy them. If nobody bids on a property at the auction, it goes back to the lender. You can offer to buy directly from the lender. My personal favorite is to buy from the property owner before the auction. It helps everybody involved.

Due to the complex nature of foreclosure real estate, I highly recommend you seek professional advice and training before purchasing foreclosure property.

Tony Youngs has been involved in the foreclosure business for twenty years for more information you can contact him through his website at www.tonyyoungs.com

FORECLOSURE AUCTIONS

 Over the past few weeks there have been several articles in the paper about the increase in foreclosures. The articles are based on the research of a company that tracks the number of new foreclosures compared to previous years. It seems we have a problem on our hands as more and more people are getting behind on their house payments due to rising interest rates and adjustable rate mortgages.  Banks are repossessing more and more houses and homes are taking longer to sell in most areas.

 

The solution is and always will be the need for investors to save the day.  I have often said that everything revolves around what’s going on at the foreclosure auctions.  It all boils down to what investors are willing to pay for properties on the courthouse steps.  Investors generally pay up to 80% or 80 cents on the dollar for a house on the courthouse steps depending on the amount of repairs that are needed to the property.  An investor needs a 20 to 30% equity or profit margin to minimize the risk when buying on the steps.  That’s why, out of ten houses that get cried out on the steps, two of them will get purchased and the other eight go back to the lender.  No one wants to bid on a house with little or no equity.  Accordingly, the lender ends up repossessing the properties.  In my opinion, it doesn’t make sense for a lender to invest money to repair a house with little or no equity in a slow market.  Investors should be making as-is offers on these properties.

 

Because of the increase in foreclosures over the last five years, lenders will need to consider doing more short sales and loan modifications than ever before.  It would be better to get their money back on a short sale so they can lend that money to someone else to produce income instead of repossessing a house and letting it sit in a slow market and producing zero income.  Lenders have never been  known to admit there is a problem, but there is.  Investors are only willing to pay about 65 to 70%  on the steps these days.  While there are companies that track the amount of properties that go into foreclosure, I like to track how much they sell for on the steps, or if they sell at all.  This kind of data is extremely valuable when I’m negotiating discounts on loans, liens, and short sales before the auction.  It helps the lenders see the reality of what’s in their best interest and I show them the long term effect.

 

In times like these, investors can  save the day for banks and homeowners alike.  What a great time to pick up some properties at bargain prices and build your portfolio.

 

Tony Youngs is a foreclosure acquisition specialist and can be contacted by visiting:   www.tonyyoungs.com

One of the first things new investors think of when contemplating on how to find great deals is going to an auction.  You can choose from the auctions held on the courthouse steps or attend any public or privately held auction to purchase all kinds of real estate.  Understand that all auctions are not the same.

There are reserve priced auctions and absolute auctions, in addition to many others but these two types are the ones you will run into most often in the real estate world.  Reserve auctions set a bottom line price that the auctioneer must meet or the seller will not sell.  Absolute auctions sell no matter the price.

You must be very careful buying from auctions.  I have found that if you want to get more for your property than you could normally get, you should sell at an auction.  If you have never been to an auction, you need to go.  It is a great education and a very exciting experience.  Good auctioneers can create electrifying buying frenzies!  Getting caught up in one can put you in debt if you paid too much. 

The auction company will allow you several days to view property, some just from the outside.  It is important that even if your intention is just to go the auction to check out the atmosphere, make sure you enjoy the whole experience and view some of the properties in advance. Do your homework!  Make a rehab list for each property you view. Pull comps on each house (at least 5 comps) to get a good subject to value of the house.  Bottom-line…………… the numbers should work!  Below is an outline of the formula we use to pre qualify a deal for rehab money: We loan up to 70%, meaning we will loan the purchase price, repairs and the closing costs up to 70% of the value.

Ex: 70,000 ARV

$49,000 =70%

$49,000-4%(points) $1,960= $47,040

$47,040 – $2,250 (about what you will pay for closing costs ie: taxes and ins, attorney fees, recording, appraisal, inspections etc.) = $44,790

$44,790-repairs ($5,000)= $39,790 is the most you can pay for the house and not have to bring any money to close the deal.

So in this case you would borrow $49,000 x15% interest divide by 12 mos. $612.50 per month in a payment.  The repair funds would stay in the Lenders account until you make a draw request for it, however, you will pay interest on the money because it is being held for you to use.  Our loan average 84 days. If the loan is not paid in full with in 90 days there is a 2% renewal fee that is added to the balance of the loan.  So if you borrowed $49,000 and paid it off on day 110 you would owe $49,980 and would be paying 15% interest on the $49,980.

Put a top dollar price of what you should be paying for the house and when you are bidding, even in your fantasy, stop when you reach your top dollar.  Also, make sure you understand the rules of the auction.  Some will offer absolute and reserve priced properties at the same auction.  We have worked with a few companies as the onsite broker and found that most of them are very informative on how they work.

One more very important thing before you bid.  Make sure you have your financing in order.  Most auctions will give you 30 days to close the deal, however, they will require 10% of the purchase, or $5,000 in cash and some will require cash in full on the barrelhead right now!

If you are not pre approved for a rehab or hard money loan, then make sure you have some kind of private funds.  If the house needs no work, then conventional loan will work.  If your strategy is to get a loan from a local bank, make sure they are aware that you are buying from any auction prior to accepting your preapproval.  In any case you are going to have to bring the required down payment to the auction before the end of the day.  That will have to come from you, your private funds, home equity lines or any other option that will allow you to get cash within a few hours.

Would I buy at an Auction?  Absolutely…………… if I had taken the time to thoroughly do my homework and had the down payment cash and a pre approval in my pocket.  Auctions are good for the seller and good for the buyer if you hold on to your hat and don’t get caught up in the frenzy!