I’m often asked why some tax lien holders don’t foreclose on the property when the property owner is in default.
Well, there are three main reasons:
- The tax lien holders do not know that the property owner is in default.
- They do not know or understand the foreclosure process.
- They do not want the deed to the property.
Recently, I have been hearing more of the latter. The tax lien holders don’t want the deed to the property. Unfortunately, many of these people do nothing, so their tax liens expire and they lose their money.
That’s how you lose when it comes to tax liens. Fail to act and you’ll forfeit what you’re owed. Fortunately, there are other options.
A Chance Encounter
It was late in the evening when I arrived at the hotel where I would be speaking on tax lien investing early the next morning. I went to the bar to eat a late dinner and watch ESPN before retiring for the night. (I may not watch the games, but I want to know who won.)
Seated three stools down from me, a man and a woman were talking. There were few people around, so it didn’t take much effort to hear their conversation.
They were discussing real estate investing, so I knew they would be attending the meeting I was addressing the next morning. Then their conversation diverted to tax liens and my ears perked up.
Both seemed to be knowledgeable on the subject. I heard one of them say, “I’m really interested in hearing what the tax lien guy has to say.” (The heat was on.)
I finished my dinner and went outside to walk around. Rarely will I ever introduce myself to people who are attending one of my speaking engagements, because it lets me roam around the hotel incognito.
I came back inside, went immediately to the elevator and pushed the button for my floor so I could retreat to my room and avoid any interaction.
But while waiting for the elevator, I kept glancing over at the bar.
Stepping out of my comfort zone, I walked over to them and introduced myself: “Hello, I’m Mark Walter — ‘the tax lien guy’ — and I hope I don’t disappoint you tomorrow.” They laughed and asked me to join them.
A New Strategy
After a brief bit of conversation, the man (I’ll call him Eric) said to me, “Let me tell you what I do and you tell me if I am crazy. I don’t buy tax liens from the auction, nor do I buy them from the county. I buy tax liens from tax lien holders that have let the property owner default and don’t want to foreclose because they don’t want the deed. All they want is to be cashed out.”
Eric continued, “The investors provide a listing of their tax liens and parcel ID numbers — they could be sitting on anywhere from one–200 liens. I research each lien and offer to buy the ones that fit my criteria.”
(Note: When you buy tax liens from other people, institutions or corporations that own them, this is known as the secondary market.)
Eric concluded, “Unfortunately, most of the liens aren’t any good because the investors didn’t do their research — they bought liens on sidewalks, slivers of land or retention ponds. I don’t like to tell them that most of their liens are worthless.”
“How much do you pay for these liens?” I asked, because many buyers in the secondary market will not pay the premium price — which is the face value of the tax lien and all accumulated interest.
Eric told me he usually offers the premium price. (This is good.)
Then I asked him, “What do you do with the properties?”
“I foreclose. The process generally takes six months to a year.” (This time frame is based on where the property is located.)
“If the property owner redeems, I receive all the interest on my investment and my attorney’s fees.” (Pay attention to this when selecting your target area. Some states do not pay interest on the attorney fees.)
“If they don’t redeem, I get the deed to the property. When I get the deed, I wholesale the property to a real estate investor.”
Frankly, this is a brilliant strategy, but it’s not for everyone. You need some pretty deep pockets and experience.
And, of course, you still need to do your research.
A Word of Advice
Obviously, there are more layers to Eric’s strategy, especially if it’s one that interests you.
But here’s the takeaway: If you own a tax lien that is in default and you do not want the deed to the property, there are other people or companies — like Eric — that will buy it.
Be sure to ask for the face value and accumulated interest — you’ve earned it, so claim it. Be wary of potential buyers that offer only the face value.
There’s a small chance you’ll ever find yourself in this situation if you follow my step-by-step guide. But it’s always wise to have a backup plan… just in case.
Expect the best,
Mark R. Walter
P.S. Want to know more about turning tax liens into income? Where to identify the properties worth owning… and how to leverage any tax lien investment into a big payday?
You may think you know how to do all that… just like I did. But Mark is always finding new ways — keeping ahead of the overall market, where the big margins are. Take a peek into Mark’s research here.