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FUN and PROFITS inTAX FORFEITEDLANDSNEWSLETTER |
NEWSLETTER
COURTESY OF TAX RESEARCH FOUNDATION
DISCLAIMER
The following information is designed to
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to improve the world."
FUN AND PROFITS IN TAX FORFEITED LANDS
STATES OFFERING HIGH YIELDS
SUBJECT: LIENS ON TAX FORFEITED PROPERTIES
I see more potential investors shying away from investing in High Yield Government Issued Tax Lien Certificates and from buying tax forfeited real estate at public auction sales than for any other reason. My email box is full of questions such as:
What happens if I purchase a tax lien certificate or property at a tax foreclosure sale that has a Mortgage on it, a mechanics lien, IRS liens, and other encumbrances?
Let's see if we can clear the waters and hopefully eliminate some of these unfounded fears.
A property tax lien is superior to any other lien on a property. It is in first place. All other liens are inferior to a property tax lien.
Here is where some of the confusion comes in. What happens with an IRS lien?
IRS liens are filed against an individual not against the property. However, Federal Statutes provides that if the IRS has a lien against an individual and property in the name of that individual is forfeited and sold at a tax sale for non-payment of taxes, the IRS has 120 days from the date of the sale in which to redeem from the purchaser at the tax sale by paying what the purchaser paid plus 5%. (They seldom exercise this option. This does not mean that their lien is superior to a property tax lien. Even if they, the IRS redeem, they are responsible for paying the superior property tax lien. Even if they do (in rare cases) exercise this option you get what you paid plus 5%.
Federal Statutes also provide that if there is a government insured loan (such as a VA loan, FHA loan, or other government insured loan) on a property that is sold at a tax forfeited sale, the government agency has 1 full year to redeem. Again, this does not mean that their lien is superior to a property tax lien.
What about Mortgages? In most cases property with mortgages attached to them do not come up for sale at a tax foreclosure sale. The vast majority of S&L's, Banks, and other financial institutions making loans require that the property taxes and hazard insurance payments be prorated and included with each installment due the financial institution. In some cases of private financing this is not true. Also, in a few cases the financial institution make fail to pay the taxes even thought the funds to pay the taxes have been provided for in the periodic escrow payments.
Even if there is an existing lien on a property in the case of judicial foreclosures of the tax lien either in the case of tax deed states or in the case of an individual holding a tax lien certificate and foreclosing the tax lien, all lien holders of record must be served and they have an opportunity to redeem prior to the expiration of the redemption period. (In most cases they have until a deed has been issued to redeem0. If they do not redeem the lien is extinguished in most cases. I only know of two possible exceptions to this. One is in the state of New Mexico where liens that attached to the property prior to the attachment of the tax lien are not extinguished. This is also true in the state of Delaware.
Let's assume the very worse scenario. Let's assume you purchased a property at a tax sale and my error or mistake a lien holder was not served or other parties of interest were not properly served, the tax sale could be set aside in court. Does this mean that you loose your money? The answer is "NO". The sale is void and you would receive a full refund of everything you paid.
If you want to provide an extra layer of protection you could file a quit title action in the proper court and have the court confirm the title in your name. I have never had to file a quit title action and I do not take this extra step because of the slim chance of any problems. Even when a problem surfaces, I get my money back.
Here again are the list of states offering tax lien certificate investing and the rates of interests and penalties being paid by them.
ILLINOIS
Illinois is a tax certificate sales type state. Both
individuals
or the state can end up as holders of the tax sale certificates. The
annualized
yield received by a holder of a tax sale certificate can be
unbelievable.
It is a little complicated but can be sorted out with a little
study.
The successful bidder at a tax certificate sale is the person willing
to
accept the certificate with the lowest PENALTY PERCENTAGE. The
maximum
penalty on non farm land is 18% and on farm land is 12%. This is
a PENALTY - NOT INTEREST. The penalty applies each six month
period
or fraction thereof prior to redemption making the annualized yield on
a bid of 18% a minimum of 36%.
INDIANIA
"6-1.1-25-2. Amount required for redemption.
(a) The total amount of money required for the redemption
of
real property equals the sum of the amounts prescribed in subsections
(b)
and (c) of this section.
(b) The total amount required for redemption includes:
(1) One hundred ten present (110%) of the purchase price stated in the certificate of sale if the property is redeemed not more than six (6) months after the date of sale;
(2) One hundred fifteen percent (115%) of the purchase price stated in the certificate of sale if the property is redeemed more than six (6) months but not more than one (l) year after the date of sale; or
(3) One hundred twenty-five percent (125%) of the purchase price stated in the certificate of sale if the property is redeemed more than one year after the date of sale.
(c) In addition to the amount required under subsection (b) of this section, the total amount required for redemption includes all taxes and special assessments upon the property paid by the purchaser subsequent to the sale plus six percent (10%) interest on those taxes and special assessments."
IOWA
The state of Iowa contains 99 counties. Tax certificate sales
and tax sales of county acquired property are handled by the county
treasurer
of each county. Certificates of sale are sold to purchasers at
the
annual tax sale or where there are no bidders they are bid in the name
of the county. Interest is calculated at the rate of two percent
(2%) per month or fraction thereof until redeemed. The redemption
period expires at the end of three years.
FLORIDA
Florida has 65 counties. It is a tax certificate sales states.
This simply means that tax certificates representing tax liens on
properties
which are delinquent for nonpayment of taxes are sold to the public or
bid in by the county in cases where there are no bidders. The
rate
of interest payable to a certificate holder is l-l/2% per month which
translates
to 18% annual interest.
MARYLAND
There are 24 counties in the State of Maryland. This is a
tax certificate sale state. The property owner has one year from
the date of the tax sale in which to redeem tax forfeited property or
up
to the time the certificate holder files an action in equity to
foreclose
all rights of redemption of the property. The interest rate can
vary
from county to county and year to year as the county commissioners set
the rate. Baltimore City is currently paying 20%.
Mississippi
The purchaser at a tax certificate sale receives a return of 5%
of the total amount paid plus 1-1/2% interest per month until redeemed.
The owner of record has two years in which to redeem
Colorado
The holder of a tax sale certificate receives a rate of
interest
calculated at nine (9%) above the prime rate, the prime rate
being
the rate a commercial bank must pay to the Federal Reserve Bank of
Kansas
City.
Arizona
Arizona is a Tax Certificate Sale State. Certificates
constitute
a lien on the property and currently bear a sixteen (16) percent
interest
rate. The interest is payable to the holder of the Tax
Certificate
when and if the property owner redeems his property.
Rhode Island
Property owners have one year following the date of the tax sale
in which to redeem their property. After the expiration of one
year
the holder of a tax deed can petition the superior court to foreclosure
the right of redemption. Should the property owner redeem within
the one year redemption period the holder of the tax deed receives, in
additional to the total amount he paid for the deed, a penalty of 10%
if
redeemed anytime with six months following the tax sale plus 1% for
each
month after six months. This can provide an extremely high rate
of
yield to investors in tax certificates.
Washington. D. C.
Tax Sales Certificates are first sold in the District of
Columbia.
The purchaser of a tax certificate receives 1% per month interest on
his
investment provided he does not bid in excess of the total amount of
taxes
and costs due.
North Dakota 9% -3 year redemption period.
Wyoming 18% - 4 year redemnption.
Montana 5/6TH of 1% per month interest up to the time of redemption
PLUS A TWO PERCENT PENALTY, 3-year redemption period.
Missouri 10% - 2 Year Redemption period.
Oklahoma 8% - 2 Year redemption. Period.
Puerto Rico 20% penalty regardless of when redeemed. One year
redemption period.
Minnesota - 12% - 3-year redemption period.
South Dakota 12% - 3 Year redemption period.
West Virginia 12% - 18 Months redemtpion.
Kentucky 12% - One year redemption.
Idaho 12% - 3 Year redemption.
Nebraska - 14% - 3-year redemtpion.
New Hampshire 18% - 2 Years redemption.
Delaware 15% Penalty - One year redemption.
Vermont 12% - One year redemtpion.
New Jersey 18% - Two year redemption.
Alabama 12% 3-year redemption period.
U. S. Virgin Islands 12% - One year redemption.
Texas - 25% - 2 year redemption.
I hope this helps making your investing more enjoyable and more profitable.
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