Tuesday, April 5, 2011

Florida Real Estate Market and Tax Defaulted Properties with Mortgages


There’s an issue at stake in Florida – one of the country’s hardest hit states in terms of the real estate market – of whether or not a mortgage lender will try to redeem a tax lien certificate. That’s the key question investors in Florida tax lien properties need to ask before placing a bid on a house encumbered by a mortgage loan.

Of course the biggest factor affecting redemption is the real estate market itself. So many Florida homeowners are underwater on their mortgages that surrounding properties are being negatively affected. Values of real estate in Florida are extremely low and continuing to decline. Lenders realize this, and they must make a choice of whether to save a property that is worth far less than the outstanding mortgage balance. In addition to the loan balance, the bank gets hit with other costs, such as the continued real estate taxes, HOA fees, etc. The lender must also consider the possibility of the mortgagee defaulting on the loan – if the collateral securing the note doesn’t cover the balance, the bank could lose a lot if the homeowner decides to walk away. And finally, if there’s no reason to believe that even once the bank recovered the property that it would sell, you can see why sometimes lenders just let the real estate be offered at the tax defaulted auction.

What does this mean for tax lien investors? For one thing, it means that there is lots of Florida real estate up for auction. For another, this situation requires the investor to be very careful and diligently research a property before bidding. The costs of paying the back taxes and then obtaining clear title to the property might not be worthwhile. You must allow the homeowner two years to redeem the tax lien certificate and market conditions could be worse by then – although many pundits believe the real estate market should be in the beginning phases of recovery by then.

There is still a way to make Florida tax lien certificate investments profitable, and that’s by buying low. If you can get a valuable property cheap enough, it leaves lots of room for profit even if you must sell the real estate at a fire sale price. Be diligent and do your homework – never invest in a property until you know exactly what you’re getting.

How Tax Lien Auctions Work in Cook County, Illinois


Cook County, Illinois is home to the state’s biggest city, Chicago. That means there are usually lots of properties being offered at the county’s annual tax lien certificate sales. But a word of caution to the first-time buyer who attends a Cook County defaulted tax auction – the bidding is fierce and quite competitive.

The state of Illinois uses a bid down the interest tax lien auction system. The interest rate on tax lien certificates starts out at a very hefty 36 percent and goes lower with each bid. What is interesting to note is that many tax lien certificates auctioned in Cook County are bid down to zero percent interest, which means that the bidder is willing to accept nothing in return for paying the past due property taxes on the parcel. In fact, 85 percent of all bids at the tax defaulted auction are bid down to zero.

The lien holder then must give the defaulting property owner two to three years to reimburse the taxes before a foreclosure action can be started.

At the auction, expect things to move very quickly. Each registered bidder is given a numbered card and bids are taken verbally. When there is a lot of competition for a parcel and more than one person is willing to accept zero percent interest, it is the responsibility of the auctioneer to decide which of these bidders will win the tax lien certificate. In most cases, the winner is designated as the person who raised their card first. This can be difficult to figure out, especially in a crowded room, so the auctioneer then uses a random selection process, rotating the award amongst the bidders so that no one person receives more property than another.

The most successful investors at a Cook County auction do everything possible to gain an advantage. They are likely to arrive very early and sit as close as possible to the front of the room, where the auctioneer is standing. That way they are sure to be noticed first.

According to the rules of the county, only one representative of any buyer or buyer’s group can be present at the auction. This rule is meant to negate the ability of a large group to stack the odds in their favor. Imagine how easy it would be to win bids in the case of a competitive zero percent tax lien certificate if a large percentage of the bidders raising their hands all belonged to the same buyer’s group!

You may wonder why someone would agree to pay the county past due taxes and expect nothing in return. The truth is that these investors are banking on the fact that the property owner will not redeem the tax lien certificate in time. As long as the amount of taxes is far less than the estimate value of the property, this allows the investor to seize the real estate and then resell it at a hefty profit – or hold onto it for rental income or personal use.

Now you know the ins and outs of investing in tax lien certificates in Cook County, Illinois. It may not be the first venue you want to select if you are just learning this type of investment.

Saturday, April 2, 2011

Tax Lien Sales in Nebraska


Tax lien certificate auctions, referred to as Delinquent Property Tax Sales, are held in Nebraska in March of each year. The properties up for auction include all tax defaulted real estate with the exception of mobile or manufactured homes or cabin trailers on leased lots. You don’t need to be a Nebraska resident to bid on these tax lien certificates.

Nebraska law states that the sale can be either an annual event or the properties could be sold one per day, if the county wishes. All tax lien certificates are offered at a good 14 percent interest rate.

If there is no competition for a tax lien certificate, the bidder is awarded the property. However, when more than one bidder is vying for a specific parcel, the auction process then becomes what is referred to as “bid down the ownership”. In this case, the bidding is for a percentage interest in the property. Whoever offers to accept the smallest portion of an undivided parcel in exchange for paying the defaulted taxes plus fees is the winner. What this amounts to for the tax lien investor is that they will receive the appropriate percentage of the profits when the property sells. The investor becomes partners with the property owner; if the investor has an interest in the biggest portion of the parcel, then he becomes the person in control of its disposition.

When you are the winning bidder, you will receive a tax lien certificate that includes a description of the property, the amount you paid for it, and the date by which the owner must redeem the certificate by paying the taxes plus interest. You must pay the property taxes in subsequent years until redemption, thereby increasing the value of your tax lien certificate.

The property owner is given ample opportunity to remove the lien from their parcel. At any time during the three-year redemption period, the titleholder can pay the past due taxes plus all fees to the holder of the certificate and regain their real estate free and clear of the lien encumbrance. However, if the owner never steps forward to reimburse the cost of the property tax, the tax lien certificate buyer can foreclose and receive a deed to the real estate. In order to foreclose, the tax lien investor must give several notifications to the owner; these must occur within very strict time limits.

To learn more about the opportunities for investing in Nebraska tax lien certificates, visit my site.

Illinois Tax Lien Auctions Under Scrutiny


Have you ever attended a tax lien auction in Illinois? If so, chances are you didn’t get a fair chance to bid. New legislation is aimed at correcting the auction process by requiring that tax lien sales across the state be videotaped in the hopes that this will resolve current issues regarding fair bidding practices. Another provision of the bill is that the past due property taxes will be forfeited in the case of a tie between two bidders – which is unlikely to happen as long as the auction is properly conducted.

The problem is that some counties have been observed discouraging free bidding which would naturally decrease the interest rate paid on a tax lien certificate. Just like Arizona, Illinois uses the decreasing bid, or bid down, system at auction. Bids on a certificate begin at 18 percent and go down from there with the person who bids lowest being awarded the tax lien. Tax lien certificate sales are conducted once a year, usually in the fall.

The legislation was introduced following a story printed in the Bellville News-Democrat that uncovered a former Madison County treasurer’s actions during tax lien certificate auctions. Apparently the bid was awarded to whomever who was in attendance at the sale and was the first to vocally bid 18 percent. This system was meant to reward cronies of the County office, leaving other bidders out in the cold.

Illinois counties actually conduct tax deed sales, too. In this state, they are referred to as Scavenger Sales. Up for bid are any properties with tax lien certificates that didn’t sell during the Annual Tax Sale and whose property taxes are delinquent by at least two years. These sales are held in the summer of odd-numbered years. That means you have an opportunity this year to purchase a tax deed in Illinois; start researching now so that you can profit! You can find more information about Illinois tax defaulted auctions here.

How would you feel about being videotaped at a tax lien certificate auction? Do you think this guarantee fairness of the proceedings or is it just another way for the government to keep tabs on honest citizens?