There are always items to keep in mind as you move forward with anything in life. Well, tax lien certificate investing is not any different. We have outlined a few items we hope you will keep in mind as you buy tax lien certificates and use some of the techniques we outlined above to earn an immediate return on them. All in all, it will help protect you and your buyer in the future, by ensuring your are investing in the right certificates and able to maximize your returns. Lets discuss some of these areas right now.
• Tax Lien Certificates Expire – Many people do not realize this, but tax lien certificates have a definite lifespan. In most counties, you will have a certain number of years to wait before you can redeem your tax lien certificate. In addition to that, you have a certain amount of time in which to execute your request for tax deed or treasurers deed. If you do not act within that timeframe, you will lose all of your rights to that property. Essentially, you will lose your investment. The tax lien certificate becomes null and void at this time. If you do not keep track of when you can redeem your tax lien certificate, you might miss out.
• Procedures to Assign a Tax Lien Certificate – When you want to sell your tax lien certificate to someone else, you have to follow the protocol of the county issuing that certificate to finalize this transaction. Each county has its own policies and rules to execute such a transfer. They may require that you wait a certain period of time before you can assign a certificate, which could be 3-12 months. Some counties have specific times throughout the year that you can request an assignment. They might have specific documents that you need to submit and fees you need to pay to execute an assignment. Why is it a big deal? When a tax lien certificate is sold at an auction, the county will record a document stating who the new lien holder is. If you assign your tax lien certificate without notifying the courthouse, you will still be listed as the lien holder in their eyes. To be fair to your buyer, it is best to notify the county and assign the lien to your new buyer. They will prepare and record a document showing who the new lien holder is and how to reach them. .
• Redemption Period After Receive Tax Deeds – Some counties will offer the delinquent tax payer, yet another opportunity to get their property back. Let’s say you bought a tax lien certificate and waited the 3 year redemption period, but the tax payer did not pay their back taxes. You go ahead and apply to receive the tax deed for the property. Now it is yours, right? Well in some counties yes and no. Yes you might have possession of the property right now, but what if that county offers the tax payer an additional redemption period after they have lost the property. Now you can see why we said yes and no, because technically, if they pay all of the back taxes and fees in full within that second redemption period, they could get the property back. If this is offered in a county you are buying tax lien certificates or even tax deeds in, you will want to understand what you can do with the property, when you can do it, how long the redemption period is for, and what happens if they do redeem the back taxes, so you can protect your investment.
• Legal Description or Parcel Number Issues – Counties are run by people, so mistakes do happen from time to time. It is in your best interest to verify to the best of your ability that the tax lien certificate being sold is actually tied to a property of interest. In some cases, you might find that you thought it was tied to one property, when in reality it is tied to another one. Obviously, this could affect the value associated with your investment and possibly make what you paid for it exceed the property value. If there is an issue with the legal description and you foreclose on the tax lien certificate, you might have a difficult time getting title insurance among other things. It is always in your best interest to verify the legal description of any tax lien certificate that you are interested in is accurate and correct. It saves you from a lot of headaches later.
• Tax Payer Files Bankruptcy – If the tax payer files bankruptcy before the redemption period is over, you might lose a portion of your investment or your whole investment. It depends on the type of bankruptcy they file. It is a good thing to keep in mind.
• EPA Issues – The Environmental Protection Agency or EPA has aggressively pursued property owners who have tainted water supplies or soil. They have been very effective in requiring all people known on title to chip in to rectify and reverse these environmental issues. Let’s say you foreclose on a property, because the lien did not get redeemed, but there are EPA issues associated with that property. You have just signed up to help the environment. Yes, you are now on title and a party the EPA could pursue to help fund the cleanup efforts. Therefore, we recommend that you do research and stay away from properties with EPA issues.
• Zoning issues or code violations – We recommend doing more extensive research on properties when you are buying tax lien certificates on properties you hope to own if the taxes are not redeemed. Why? The main reason is that the property might be in severe violation of the local building code, thus it may not be cost effective to make the repairs necessary to bring it up to code. It might be the reason why the current owner did not pay the taxes. The zoning of the property might be a positive or negative from a value standpoint. It could have very desirable zoning or quite a few restrictions. For instance, it might be zoned agricultural, which might be hard to convert to another type of zoning. It might be a parcel of land that is protected by some sort of act such as land preservation or historical preservation. All in all, these issues or violations could greatly restrict what you can do with these properties and who would be interested in these properties, thus affecting your ability to profit from them too.
• Natural Disaster or Other Demolition of Improvements to Property– If you buy a tax lien certificate based on the land and its improvements, you are basing your invested amount on its combined value. What if a natural disaster occurs or the improved structure is condemned or torn down within the redemption period? Now what? You will not have a property that is worth what it once was, but hopefully you took those things into consideration when you bought the tax lien certificate, so you did not pay more than the property is currently worth minus the lost improvements.
• Superior Liens Filed Against Property – As we mentioned in prior lessons, you might face federal tax liens that will be superior to your tax lien, so you should do your due diligence to determine if these exist on a properties you are interested in bidding on. It is up to you as to whether you still want to purchase this tax lien or not. It could affect your investment and your ability to obtain the property at the end of the redemption period, if there are still outstanding federal liens. You would need to pay these off in full in order to get the property. Additionally, you might find that prior tax years were not paid, so there are other tax liens recorded against the property. These are superior liens like your tax lien, but they take higher persistence due to the date they were filed, thus your lien will be in inferior lien position to these liens. How does that affect you? Well they can foreclose sooner than you, however, they will need to clear off your lien along with the rest, so you could still get at least a portion of your investment back. Likewise, if your lien is filed in first position, but you do not buy subsequent years of tax liens on this property, you will face the same thing. If you foreclose, you will have to clear off the rest of the outstanding liens to obtain free and clear title.
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