Tax Lien Certificates and Tax Deeds Generate More Security and Predictability and Accountability Than Stocks, Bonds or Real Estate

Tax Lien Certificates and Tax Deeds are not a get rich quick process. This little known but highly lucrative government program has been around for 200 years, it’s available to all who learn how to use it. You can start with only a few hundred dollars or you can place thousands of dollars, it’s your decision. The interest rates on Tax Lien Certificates range from a low of 8% to a high of 24% with penalties a high as 50%. The rates do not rise or fall with the bank rates or the stock market. For your information and review we provide you with a free 30 minute webinar filled with detailed explanations of what a Tax Lien Certificate is and how you can profit from it.

The process starts when a property owner, for whatever reason allows the property taxes to go unpaid.  The property will end up on a Tax Sale List.  The county government always needs revenue to pay the essential services of government, police, fire departments, roads, libraries, schools… That money comes from property taxes.  The county will advertise the delinquent property for sale on a Tax Sale List.  The announcement could be in a local newspaper or a legal paper or online.  The property will be posted with a written notice and there will be a written notice on the internet.  Shortly after the notice of sale is posted on a Tax Sale List, the county will sell the Tax Lien Certificate which is an I.O.U. at public auction.

It’s a whole new world in the Tax Deed states, the county will sell the Tax Deed at public auction. The investor that purchases a Tax Deed will be issued a Treasure’s Deed to the property. This deed doesn’t always give immediate possession. It does however; give the Tax Deed purchaser rights to the property at a later date.  The point is, rules differ from state to state.  For example in Georgia the property owner is allowed one year to redeem (pay the Tax Deed holder).  In Georgia, upon payment of the back tax and penalty the deed holder must release the Tax Deed.  When the Tax Deed is placed in the county official’s possession or the individual tax deed holder, a check will have paid the back taxes and penalties in full.

The rules in each state are different. Ohio like most states, requires the Tax Collector to notify the mortgage/lender of the Tax Deed auction/sale thereby allowing the mortgagee to bid at the auction/sale to protect the lender’s portion.  Keep in mind Tax Lien Certificates and Tax Deeds are two different investments.  In Ohio the bank can allow other bidders at the Tax Defaulted sale to bid higher than the mortgage due.  This is a unique process the wise investor should investigate thoroughly.  To further explain, the successful bidder in Ohio at a Tax Defaulted auction could bid to purchase the property for the amount of the back taxes plus take the property “subject to” the existing mortgage.  To further explain, in Ohio the bidder purchases or bids the amount of taxes and simultaneously agrees to pay mortgage payments for the remaining term of that loan.  That little nuance doesn’t take place in most states.  In many states bankers/lenders are wiped out.  That means the loan is extinguished and removed at the Tax Deed auction.

Those who are aware of the above rules and situations could take advantage of an excellent purchase.  For example, the bidder reviews the public records and determines the property value is $55,000 and the existing mortgage is $13,345 which leaves an approximate equity of $30,000 plus. Equity is the difference between the mortgage ($13,345) and the value ($55,000), that translates to $41,655 equity.

The Tax Collector offers the property for on the past due delinquent taxes of $4,519.  The bidder purchases the property for $4,520 from the government; the whole amount is back taxes and takes the property subject to the existing $13,345 loan.  In other words, the bidder agreed to pay the mortgage of $13,345 until it was paid in full.  This is subject to.  The purchase looks like this:
Bid paid to the Tax Collector: $4,520
Mortgage:            $13,345
Purchase Price:        $17,865

Total out of pocket cash: $4,520.  Shortly thereafter the property is sold for $52,900.  After paying the loan of $13,345 and collecting the original investment of $4,520, there is a remainder of $35,035.  Not a bad investment.  What’s the lesson?

States are not created equally when it comes to tax laws.  The rules in Texas differ considerably from rules in Florida.  That’s why it’s important to do your research before you go to the auction.  This bidder’s knowledge of the process and rules allowed him to buy a good property for pennies on the dollar.  The property was sold for a profit of $35,038 eleven months after its purchase.  That’s a $3,185 profit for each month of ownership.

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