***Tax Sale Alert***

Wayne County, Michigan (Detroit area) is holding its first-ever online tax deed sale starting September 17! Currently, there are 13,135 tax foreclosed properties that are scheduled to be sold, and these properties may be previewed at http://www.bid4assets.com/Wayne . The Bid4Assets online auction site also has information on tax sale registration requirements. For general information on tax deed sales in Michigan, visit http://uspropertytaxsales.com/michigan-tax-deeds.

Create a "Safe Working Environment" for Your Money!

There are risks involved in every type of investment. Some investments involve huge risks but give the investor the opportunity at reaping huge rewards. Other investments are safer, but the return on the investment does not excite the imagination. It would be nice to have both, wouldn't it? A calculated, safe investment with a very high likelihood of a strong return on investment, and a good possibility of an astronomical return on investment. Tax liens and tax deeds ARE that type of investment!

Tax Lien and Tax Deed Investing Involves a HUGE Marketplace

You are probably already aware of this, especially if you are a homeowner, but did you know that...

Property tax MUST be paid by individuals, businesses, and government entities on virtually every parcel of land in America!

And did you know that...

Every county (or other municipality that collects property tax) needs and MUST collect this income to fund municipal budgets/programs such as fire stations, police stations, public libraries, schools, parks, and roads.

Many homeowners and landowners, especially in this economy, are often delinquent in paying their property taxes. The counties understand this, but it doesn't change the fact that they need that money. To obtain that money, the counties place tax liens on delinquent properties, and allow savvy investors to essentially pay the delinquent property taxes for the property owner. In return, the investor gets a nice (and sometimes phenomenal) return on their investment once the property owner redeems (pays the lien amount) their property. I'll explain the process below.

Creation and Life of a Property Tax Lien

1. Property owner doesn't pay their property taxes on time and is usually hit with a late payment penalty.
2. The county sends the property owner one or more notices about being late and informs the property owner that a property tax lien may be placed on the property if the property taxes are not paid by a certain date.
3. If the "certain date" passes, and the property owner has still not paid the property taxes, the county places a property tax lien on the property.
4. The property now has a tax lien on it, and that tax lien is added to the inventory of tax liens to be sold by the county at a public or online auction.
5. The tax sale list of properties is advertised in the classified section of local newspapers and is often posted on the county's Web site as well. The information on a list of properties will vary, but usually always includes the physical address and/or property ID, the owner name, and the minimum bid amount. Tax sale lists can also be viewed at the county office or obtained by mail from the county (usually for a fee).
6. The tax lien is sold to the highest/best bidder at a public or online auction. The frequency and bidding methods of public tax lien sales vary by state and by county.
7. By buying a tax lien, the real estate investor is essentially paying the property taxes for the property owner. The investor pays this money directly to the county office and has no interaction with the property owner. Starting from the date of the tax lien purchase, the investor can earn an incredible, fixed interest rate or flat penalty rate on the tax lien "certificate".
8. After a few weeks or several months, the property owner may finally pay their back taxes plus penalties and interest. This is also referred to as "redeeming the property."
9. After receiving the money from the property owner, the county then mails a check to the investor. The check covers the investor's initial investment plus all interest earned on the tax lien certificate.

Factors Determining the Interest Rate on Your Investment

The interest rate or yield on investment is influenced by the following factors:

• The state's mandated interest rate (and/or flat penalty rate) terms or guidelines. Each state that sells tax liens or "redeemable" tax deeds (explained below) has a base interest rate or flat penalty rate that is assessed on the property tax bill when it is finally redeemed by the property owner.
• The bidding type used at the auction and the result of the sale. There are a few other bidding types as well, but the two main bidding methods used at tax lien auctions are Premium and Bid-Down Interest.
  
  • Premium bidding auctions: In a Premium bidding auction, the minimum bid (generally the amount of back taxes owed plus all fees and interest) and the interest rate are already set. The winning bidder is the bidder who is willing to pay the highest "premium" or "overbid" on the tax lien certificate. Investors must be aware that some states pay interest on the "premium" or "overbid", but other states do not.
  • Bid-down Interest auctions: In a Bid-down Interest auction, the price of the tax lien certificate is already set. The winning bidder is the bidder who is willing to accept the lowest interest rate on the tax lien certificate. If the base interest rate for the state is 18%, the interest rate is bid down in as small as 1/4% increments. For example, the interest will be bid down to 17 ^3/4, then to  17 ^1/2, then to  17 ^1/4, and so on.
• The time that elapses between the date of the tax lien certificate purchase and date of redemption. Most states use a per annum (annualized) interest rate. If the interest rate on the tax lien certificate is 18% (equivalent to 1 ^1/2 percent per month), and the property owner pays the back taxes after 6 months, your actual return is 9% ( 1 ^1/2 % x 6 = 9%). If the property owner pays the back taxes after 18 months, your actual return is 27% ( 1 ^1/2 % x 18 = 27%)! Some states employ flat "penalties" instead of accruing interest rates. A penalty is bad for the property owner, but good for the investor. If you invest in a state that uses penalties, you want the property owner to redeem as soon as possible because interest accrual is no longer a factor. A penalty is a flat rate that is assessed on the tax lien amount regardless of when the investor pays the tax bill. You get the same return whether the property owner redeems the next day or six months from the date of the sale. This leads to incredible returns!

But wait, there's more!

There is also a chance that you'll get the property when you purchase a tax lien certificate. Each state has a redemption period in which the property owner must pay their back taxes or risk losing their property. A redemption period is essentially the period of time between the county's first attempt at selling the tax lien at a sale (whether it was purchased or not) and when the county or tax lien holder can start the home foreclosure process on the property owner. 

And this may be the best part....

A property tax lien is a first order lien which takes precedence over virtually^* all liens and encumbrances on the property! This includes all mortgages on the property! What this means is that it is possible to acquire the property "free and clear" and the existing mortgage is wiped out!

More Interested in Directly Obtaining Properties?

The purchasing of tax deeds is a little different than tax liens, but the general concept and process is the same. When you buy a tax deed at an auction or directly from a county "over-the-counter", you are actually buying the property, usually at a huge discount compared to the market value. Tax lien and tax deed states are split about equally in the United States. In a tax deed state, the counties still place tax liens on properties, but they do not make these tax liens available for public sale. Instead, tax deed states wait until a property owner is about a year or more delinquent on their property taxes, at which time they notify the property owner that they will be selling the tax deed to their property at a public sale unless they receive payment from the property owner before the sale occurs. In some tax deed states, the former property owner has no opportunity to redeem the property once the tax deed is sold. In other (redeemable tax deed) states, the former property owner is given a redemption period in which to redeem the property. During the redemption period,  interest and/or penalties accrue. If the former property owner is able redeem the deed, the tax deed purchaser "loses" the property but receives a handsome return in interest. There are a few states, such as Alabama and Florida, that sell tax lien certificates and tax deeds.

Finding the Best Tax Lien and Tax Deed Investing Strategy

When it comes to tax lien and tax deed investing, there are many strategies to use. You may want to supplement your income or just find a better place to park your money. You may already be a real estate investor and you want to add some tax lien certificates or tax deed properties to your portfolio. You may want to dedicate a whole lot of time to this or maybe just a few hours a week. You may have a little money to invest or a lot. It doesn't matter. Tax lien and tax deed investing can be a sound investment strategy for anyone.

The bottom line is that...

You are either going to make a nice return on your investment, or you are going to get a property for a small fraction of its fair market value!

Want More Information?

Hopefully, you have found the information on this page helpful. This Web site contains a lot more free information on tax lien and tax deed investing. For practical articles on tax lien and tax deed investing, click the corresponding links at the top of this page. 

As I have mentioned previously, the property tax collection procedures and laws vary for each state. Each state has advantages and disadvantages. Some states use online-based auctions and others do not. In some states you can purchase tax liens (and even tax deeds) "over the counter", which means you buy them directly from the county with no competition to consider. Each state uses different base interest rates and different redemption periods. Only you can decide what state is right for you. To get state-specific information, click the links on the left navigation bar.

The state-specific information found in the State-by-State Summary page is still free, but requires registration to the site. To create a site user account, click here. You will create a user name and password and provide your name and email address. After registering, an email with an account activation link will be sent to your registration email address. You must open your email account and click on this link to activate the account.

I hope you enjoy the information provided on this site and realize the exciting opportunities that tax lien and tax deed investing provides. Best of luck to you in all your financial and investing endeavors!

Russell Hall

Founder of USPropertyTaxSales.com