A Walk Through of the Tax Lien Process

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Macro Investments LLC: A Walk Through of the Tax Lien Process (Real Estate Investing Education)

What is your experience with investing in tax lien properties or tax lien certificates? Are you familiar the high potential to pick up real estate for just pennies on the dollar? Today I will walk you through my journey leading up to attending my first tax lien auction.

There are several ways to invest in real estate. You must educate yourself on the most suitable forms of investing that fit your lifestyle.

Of course, every real estate investing strategy is not ideal for every person. It depends on the persons daily responsibilities, disposable income and their learning curves.

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Tax liens is a complex system of investing. Most of the complexity lies within how each state and/or county may perform the process differently. However, at its core, the process is the same.

My Journey

My journey began with watching a late night infomercial on television as a teenager. “Pennies on the Dollar!” The infomercial said.

The infomercial went on about how you can invest in real estate with just pennies on the dollar (being their bait and hook tag line of the advertising). Well, they caught me! I was on the hook!

After purchasing the product for a couple hundred dollars, I learned the process and what tax lien and tax deed investing looks like across the U.S.A. The process was very intriguing. The strategy had my full attention. I had to learn how you could acquire real estate using this method.

Knowing that I would pursue real estate investing as a career path, I knew that investing in tax liens and deeds was a strategy that I had to become proficient in. I took about a year studying the process and was fortunate enough to bounce a few of my questions of someone who was conducting this strategy in the process.

Key Concepts

The key concepts to understand first is that each state has a threshold to where a taxpayer has become delinquent in maintaining their tax obligation on a piece of real estate. The real estate can be commercial or residential. At the point where the state or county deems the level of delinquency too extensive, the state will offer the delinquent tax bill to any willing investor. When or if purchased, that payment toward the tax payers delinquency is issued to the tax buyer in the form of a tax lien. The tax certificate confirms the transaction. The investor (or tax buyer) could either earn interest income on their investment or they could possibly become the owner of the property.

Only states that perform the tax lien process will offer these delinquent tax bills to investors at what is called a tax sale. Other states may perform the tax deed process which we will cover at a later date.

The delinquent tax bill issued in the form of a tax certificate, is to allow any eligible investor to pay all or a portion of a delinquent tax bill, offered at either an in-person auction or an online auction. To become eligible as a tax buyer, you may be required to register for the tax sale prior to attending the auction.

Delinquent tax payer’s properties are usually represented in some form of a publication, by the county or by a trustee acting on behalf of the county, using the parcel identification number or P.I.N.

You can inquire with your local county clerk, treasurer or tax claim department for access to the publication of available P.I.N.s to be offered at the tax sale. You would also inquire about the eligibility requirements for attending the auction, payment requirements and details of how the process proceeds after a tax buyer is the winning bidder.

Preparing for the Tax Sale

After receiving the publication, you’d familiarize yourself with the list and begin your process of elimination. Weeding out the property types and locations you are not interested in. After performing this first process of elimination, you’d proceed to your secondary process of elimination by running a title search to see what other liens may be on the title that you’d want to be aware of. There are several forms of due diligence you’d want to perform before deciding to bid on a property at the auction.

When I received my first publication, it was in the city newspaper. The list was extensive. I had to learn what represented a residential property versus a commercial property and I also learned the zip codes I was interested in. This took a considerable amount of time being that there were thousands of properties in the newspaper.

Next, I learned of how I could perform preliminary title searches on a private website that listed all the filings on each parcel’s title. After reviewing the title search on the list I had narrowed, I learned to evaluate the P.I.N.s on a geographical information system map or G.I.S. map.

G.I.S. mapping is important because sometimes, to have a complete property you may need several adjoining P.I.N.s. You wouldn’t want the P.I.N. for the house but not the P.I.N. for the garage.

The next step after G.I.S. mapping is to drive by the property or look at the property on Google Earth. It is important that you see what is currently going on on the P.I.N. that you intend to purchase.

Perhaps the building was demolished, or someone may be using the P.I.N.. for a storage yard illegally, or perhaps the P.I.N. is on undevelopable land. There are many reasons you’d want to look at the P.I.N., or research further, to see the physical details related to the P.I.N. before bidding on it.

Attending the Tax Sale

Once I completed all my due diligence, my list was narrowed effectively, and I knew what I wanted to bid on. I knew exactly what I was bidding on, when it was last occupied, the appreciation potential for the area and the maximum amount I could pay for the P.I.N.. I also knew my exit strategy for each P.I.N. if purchased. It is important you know your exit strategy for every PIN that I would bid on.

This strategy was amazing I thought. The county tax sale auction I attended started off their auction at $250 for every parcel and allowed bidders to bid up as high as they wanted. The winning bidder would receive the tax certificate or tax lien.

Once the tax certificate was received, there would be a redemption period that the tax payer would have to pay the tax buyer back by — with interest and possibly penalties. If the tax payer did not pay the tax buyer back within the redemption period, the tax buyer has the option to foreclose on the property and pursue ownership of the deed through their attorney.

If this is successful, the tax buyer would have purchased the property for the amount of their tax certificate, plus any outstanding liens and their attorney fees. Of course each P.I.N. will vary with whether they carry any additional liens, but you will have the opportunity to purchase a property at just pennies on the dollar if the tax payer doesn’t redeem. If they do redeem you earn interest on the money you invested. In some states the interest income is 15%, 20%, 30%, 50% and even 72%! Note: There are risks of a tax payer not paying and possibly not needing to pay if they file for bankruptcy.

Results

Needless to say, I attended a few auctions before I bought my first piece of real estate. The first auction I attended, I was not able to bid because I did not register in time, but I did have my list ready of P.I.N.s I was interested in.

Two of the houses that I had on my list, no one bided on! That means I could have gotten the tax certificate/lien on those two properties for $250 each! Amazing!

You will find many investors lack data on many parcels at auctions because, like you, they have their specific list of P.I.N.s they are interested in or they were not able to complete the level of research you did prior to the auction.

Summary

With so many counties in the U.S.A. needing to offer tax liens and tax deeds at tax sale auctions, due to tax payer delinquency, there are endless opportunities to pick up great investments once you are educated on the process. Be mindful, that these property interiors, are highly uncapable of being viewed before purchasing so you are buying site unseen. This makes it that much more important, that your due diligence process is very thorough.

Over my history of investing and reviewing sources of education, I have found a resource that is super at educating people on this investing process. Also, I have yet to purchase I tax lien or tax deed property that did not produce a profitable return.

  • This source is efficient at teaching, so it doesn’t waste your time, and it is very thorough. Please check here if interested. I think it’s under $10!

Thanks for joining us today faithful readers-future leaders! Keep striving for growth and putting your best foot forward.

Love ya and keep up the good work.

Please leave a comment or your experience with tax lien investing.