Thursday, March 31, 2011

Changes in Georgia Tax Lien Sales Imminent

A bill pending in the Georgia state senate is meant to address the tax lien certificate sale process in Fulton County. Alleged abuses of the current sale system are behind the proposed changes; namely Fulton County’s practice of selling tax lien certificates to private companies which then charge exorbitant monthly interest rates and fees to the delinquent homeowner. The legislation is not meant to affect county collection of taxes due, but change the practice of selling tax lien certificates to private investors in order to protect property owners in the state of Georgia.

What many residents of the state perceive as detrimental are the improper notification system, high costs to the property owners, and a negative effect on communities that are struggling to revitalize their towns. Many people believe that the tax lien certificate sales do not really save counties any money; Fulton County, in particular, which is the only Georgia county that holds tax lien sales in order to collect past-due property taxes.

The new bill would limit the properties up for sale at the tax lien auction. No longer included would be those parcels where the assessed value is being disputed and properties that are less than a year delinquent. Currently, counties can sell tax lien certificates on real estate that is only 30 days past due on tax payment. Opponents of the new plan say this will only drag out the process of collecting and foreclosing.

Proper notification is also being addressed. The new legislation would require certified delivery of the lien notice. Opponents argue that many times the problem occurs when the notice is sent to the wrong address and this provision wouldn’t help matters – but it would cost the counties more money in postage.

One proposal that is being offered instead of the new bill is to limit the ability of companies who themselves owe back property taxes from purchasing tax lien certificates at auction.

At this point, the bill has been approved by the state Senate and is now before the House. Before the dust settles, expect further regulations to be proposed to Georgia’s tax lien certificate sale system and targeting of Fulton County’s policy to sell the certificates to private companies. Many elected officials are refusing to be transparent and provide requested information on tax lien sales so the struggle to reform the system and possibly even outlaw Fulton County tax lien sales will probably get nastier before it’s resolved. Stay tuned for more information as it becomes available.

Your IRA and Real Estate Investments


One of the “secrets” I share with all of my students is that you can use your self-directed IRA funds to make real estate investments. You are learning how to make great profits by investing in tax lien certificates and tax deeds and using your IRA funds to finance this venture is an excellent way to make the most money now and pave the way for a very comfortable retirement in the future. The beauty of this plan is that the profits you make now are not taxable.

You can use a self-directed IRA to purchase tax lien certificates or tax deeds. You are allowed to buy and sell real estate with the funds, or become a landlord by renting out the property. If your IRA fund is set up correctly, you can borrow against the account and use this to finance your investments. A self-directed IRA means you are in control of your money!

There are a few IRS rules you need to be aware of, though. You are not allowed arms-length transactions, so you couldn’t buy a tax deed attached to property that was owned by a family member. Also, if you personally use the property before you retire, this could make the real estate you purchase through your IRA taxable now.

I always recommend that you hire a good accountant as well as an attorney to help you make the right decisions for your investment profits. Using your IRA is an excellent way to fund your investing, but do check with a professional to ensure you stay within the IRS guidelines for doing so. As we all know, the IRS changes the rules every year so it’s always best to know exactly where you stand before you make a potentially costly mistake.

What Types of Properties Are Most Likely to Redeem?


When you invest in tax lien certificates for a safe, secure investment that will next you anywhere from 14 to 50 percent interest on your funds, chances are you want the property owner to redeem the certificate. If you don’t want to deal in real estate sales, then earning the interest on past due taxes is ideal. But how can you increase the odds that the property owner will redeem? You may want to limit your purchases to real estate of the following types.

Properties Secured by Mortgage Loans

Any real estate that is not paid off and secured by a mortgage loan is very likely to redeem the tax lien certificate within the redemption period allowed. Of course, the mortgage lender does not want to lose the property because that takes away the collateral securing the loan. This is why the majority of mortgages require the homeowner to place property taxes in escrow. But there are a few loans written without this requirement.

If you can locate real estate that is secured by a mortgage and the lender does not collect the property taxes, this is a very safe bet for purchasing a tax lien certificate. Chances are that the lender will pay the lien in order to prevent the property from being foreclosed on by the certificate holder but it’s not guaranteed. With so much of today’s real estate suffering from lower valuations, in some cases the lender might just let the property go.

Owner Occupied Homes

The second type of real estate that is nearly always redeemed is a residence where the owner is still occupying it. Certainly this does not hold true in all cases as sometimes the owner just can’t afford to pay the taxes, but the odds of getting your money repaid are better when the home is occupied.

Another option in this case is that you do foreclose on the property and gain the deed. What do you think the chances are that the former owner will want to continue living there? I think they’re pretty good. In this case, you can become a landlord and eventually sell the property back to the former owner. This is what one of my students, Karen Lewis, did and she made a tidy profit – but not without some hiccups along the way.

You will need to decide for yourself if you want your tax lien certificates redeemed or if you’d rather take ownership of the defaulted property at some point. This consideration will determine which tax lien certificates are the best investment for you.

Does the Tax Lien Always Take Precedence?


In the majority of counties throughout the United States, when you purchase a property through a tax deed sale or gain the deed via foreclosure after a tax lien certificate default, the lien levied by the county is given first priority. That’s what makes tax lien certificate and tax deed investing so safe and secure. You always get something in return for your investment, whether it’s a hefty interest rate or the property itself. But in a few cases, other liens might challenge your exclusive right to the property.

A state lien may take precedence over a county tax lien. Such is the case in Arizona, where state liens and encumbrances are “superior to all other liens and encumbrances”. That is why researching the properties offered at a tax lien certificate auction is so vital. It’s probably best that you don’t bid on a property that is encumbered by a state lien but then again, if you can get the parcel cheap enough, it might be worthwhile to go ahead and purchase it and pay off both liens. Do be aware, however, that the real estate market has still not recovered in Arizona so property values are not at their optimum right now.

Generally a federal tax lien on property is given first position over any other liens. The IRS wants their money at any cost, as we all know, and since it is a federal agency, they are usually top dog.

The good news is that property tax liens nearly always take precedence over mechanic liens or mortgage liens.

Laws change all the time so be sure you carefully each county’s tax lien certificate sale rules before bidding. Every if you’ve been bidding at auctions for years, you should never assume that the regulations haven’t changed. Remember, the most successful investors that never overlook doing their homework.

Lessons About Wealth From Warren Buffett


I’ve spent a great deal of time researching one of the world’s most successful and wealthiest investors, Warren Buffett. I believe that each and every one of us can learn something from the principles he uses when investing his capital.

Here are the top 10 lessons about wealth pulled straight from Warren Buffett’s books, articles, and biographical information:

  1. He established his own set of rules for investing and follows them with each and every investment he makes. The strict adherence to these rules have saved him from making costly mistakes due to impulse buys.

  1. Buffett is continually learning and self corrects as a result of his knowledge. He once stated, “We’ve made significant money in certain common stocks because of the lessons we learned at See’s.” He was commenting on his investment in the See’s Candies company, which provided an excellent return. From the experience, he extracted many lessons that were applied to future investments.

  1. He used mentors and learned a great deal from their experience.

  1. Buffett always looks for good companies that are available for a fair price. He doesn’t wait for a deal to come to him; if his research shows a company is worth investing in, he does so immediately. He then holds the investment long-term to make as much money as possible.

  1. He is an independent thinker who doesn’t care what the pundits are saying. Buffett doesn’t listen to what others think about the value of the market or the direction it is headed. His core principle of buying good companies at reasonable prices withstands the test of time and market conditions. His decisions are based upon his own experience, rules and knowledge.

  1. Buffett lives well below his means. He learned the value of a dollar and how to discipline himself to save at an early age. Although he could reside in a huge mansion anywhere in the world, he has lived in the same house for over 30 years.

  1. A tangible goal with every investment is to increase the intrinsic value 15 percent each year.

  1. Buffett knows the value of sticking with what he knows; he avoids businesses in industries he does not understand. His investment portfolio is comprised of certain types of businesses and he refuses to add companies that don’t fit the profile.

  1. His year-to-year (short-term) earnings are not a primary focus. Instead, he relies on four- or five-year averages to determine how well his investments are faring. This is a vital lesson for fledgling real estate investors who tend to quickly get upset or frustrated with their short-term return on investment. Making a snap decision to sell a property that is not performing well today can be a big – and costly – mistake.

  1. Buffett places a great deal of importance on a company’s management team. Nearly every company he purchases is allowed to keep the existing management team to continue running the company. He doesn’t invest only in businesses, he invests in human resources, as well.

Let’s face it, when you want to learn how to do something, you seek out an expert, right? I can’t think of a more successful investor than Warren Buffett. You would be wise to take heed of the principles, rules, and systems he uses and apply them to your own investment strategy.

Buying Tax Lien Certificates After the Auction Date


The majority of states set tax lien certificate sales for one, maybe twice, a year. Part of the research that goes into successful investing is knowing when those auctions are scheduled and being prepared to attend them when that date comes along. But what happens if you miss the sale? Are you just out of luck until next year?

Not necessarily.

One way that you can still invest in tax lien certificates after the date of the auction has passed is by purchasing liens left over from the sale. Not every tax lien certificate is going to sell at every auction. You can bet that the county is going to want to get rid of whatever certificates are remaining. In this instance, you need to do your research and find out where you can find the list of leftover properties and figure out the process of purchasing them. Don’t be afraid to consider this real estate; there are still some great deals to be had by buying tax lien certificates that didn’t sell at auction and your competition is bound to be slim or even none.

Another way to benefit from post-auction tax lien sales is to use the mail-in method. Some counties allow interested investors who do not live in the area to submit bids in absentia throughout the year, either at predetermined times or any time. Although you can find some fantastic properties this way, do be cautious and work with a local realtor to ensure that the parcels are of appropriate value – ask your real estate partner to drive by the property and submit photos before bidding on the tax lien certificates.

The successful tax lien certificate investor never discounts an opportunity to make a profit – even after a county’s auction has officially ended for the current period. Remember, where there’s a will there’s a way and the most successful investors think outside the box to nab great deals that others aren’t aware of.