These days it can be hard to find quality real estate deals. A lot of investors don’t use the MLS or standard sales channels anymore because those markets get easily flooded.
So how can you, the investor, find solid deals in 2021?
Let’s say you’re an investor, and you are looking for condos in Baltimore. As a Delinquent Tax Lists shrewd investor, you aren’t planning to buy a regular on the market or MLS property. You don’t want to pay that much.
It just so happens that Jack owns a lovely two-bedroom, two-bathroom loft in the heart of Baltimore, Maryland. He paid $175,000 for it a couple of years ago. The taxes are $2013 per year and have steadily increased, but he was laid off and has been unable to find adequate work to cover his tax bills.
You may be in luck.
What if we told you that you might be able to buy Jack’s property for a song? It could get Jack out from under the mounds of bills that are stacking up. And get you the investment you were looking for. Win-win, right?
Are you curious?
Read on for the secret sauce about delinquent tax lists and sales.
So, What is this Mysterious Delinquent Tax List, Anyway?
The tax collector or treasurer of the county creates a list of everyone who has delinquent property taxes. Hence the name, delinquent tax list.
Depending on the county, it is also known as:
- Tax forfeiture list
- Delinquent tax roll
- Tax delinquent list
- Tax assessor’s roll
In our example, Jack in Baltimore has been on this list since the day after he was delinquent on his property taxes.
In Jack’s case, Baltimore County isn’t very lenient. The tax bill is issued on July 1st every year. If the bill isn’t paid in full by Sept 30th, the account will be considered delinquent and added to the list.
Is it possible to get off the delinquent tax list?
Yes. To get off the list, the homeowner must pay off all the delinquent property taxes, interest, and any fees that have accumulated over the years.
To summarize, this list is a compilation of people who have delinquent property taxes, but their property hasn’t been seized yet by the county. It is kind of a secret list that a lot of people don’t know about. So, if you get your hands on it, you could be adding to your pocket and real estate portfolio very affordably.
We will get into those details in a minute. First, let’s go over a timeline.
Timeline for a Delinquent Tax Sale and a Tax Lien Sale in Baltimore
- July 1: Jack is sent a tax bill
- September 30: Jack can’t pay that bill.
- October 1: Jack is considered delinquent and put on the delinquent tax list. Smart investors try to buy Jack out of his debt and buy his condo. It would be a private transaction between Jack and the investor, and the county wouldn’t get involved.
BUT, if Jack doesn’t pay his taxes or sell, the county steps in.
- March 1: A Final Tax Sale notice is mailed to him. During that same time, Baltimore County publishes a complete list of properties eligible for tax sale twice, in two newspapers. Read the paper, and you'll find out what is for sale.
- Early April: The city sends Jack another notice about the impending tax sale.
- May: The annual tax sale is held.
What is a tax sale, you ask? The quick answer is a sale of real estate as a result of delinquent taxes. It doesn’t matter if they are one mortgage payment away from their very last one, or they still owe the full monty. If they don’t pay those taxes, they could lose their home.
Now, let’s get back to that list.
So, how do You Get the Tax Delinquent List?
The first thing to do is contact your city or the county treasurer to see if they will give you the list for free. Some counties will, and others charge a fee. The fee is per parcel and can range anywhere from $.01-$1.50. But the most common price is $.25 per property.
If your county doesn’t sell the information, you will have to do a little digging. Most cities have list provider companies that compile all the info and sell it. Often you can find someone at a local title company that will offer this list for sale.
Now that you know how to find tax delinquent properties in your area let’s dive into what to do with all the juicy information.
What's so Great About Delinquent Tax Sales?
This is where the delinquent tax list comes in handy. You are sitting on a possible goldmine because everyone on that list is a motivated seller. As an investor, sellers that are under pressure to sell, for whatever reason, will usually accept a lower purchase price. Good news for investors!
There are two types of property lists that someone late on their taxes should be aware of. First, the delinquent tax list that occurs the day after you are late on your property taxes. And the second is the tax lien property list, which happens down the road.
The homeowner hasn’t been delinquent long enough for the county to put them on the tax lien property list. So, once you have the delinquent list, you have insider knowledge.
Some investors either haven’t discovered the beauty of this property list or don’t even know it exists. That means you have less competition when you are trying to buy these properties. Less competition means more opportunities for you.
So basically, you are trying to buy this property before it’s offered to the masses and is part of a tax lien sale.
Ready for more? Let’s get into it.
How to Buy Property with a Delinquent Tax List?
Let’s go back to Jack. He is in a bad position; he can’t pay the taxes and is on the delinquent tax list. You bought the list from the county and learned about Jack’s situation. He is a motivated seller because if he doesn’t sell, he will be foreclosed upon, his credit will be ruined, and could possibly still have a massive debt owed to the mortgage lender.
If you, the investor, contacts Jack before the tax lien sale and offers to buy his home, even at a lower price than it’s worth, Jack’s credit won’t be ruined by foreclosure. He will be able to move on. He gets out from under his burden, hopefully, clears all the debt, and you buy a property for less than market value.
It’s the best possible outcome for both parties.
So how do you go about reaching out to Jack?
You got the property list, which has the addresses and the names of the owners. However, the owner may not live there. So, the first thing you must do is follow the tax record of the property to find the owner's correct mailing address.
You can do that here on www.propertytaxrecords.org.
Once you know the mailing address, it’s time to start writing a simple and straightforward letter. The owner is under pressure to sell and has been getting copious amounts of notices from the city and county. They are generally super stressed and may have even stopped opening any bills or notices at all.
It’s possible that if you come in with an offer that will make the homeowner a little bit of money, they will reach out to you. At this point, they have nothing to lose. They are at the end of their rope financially.
There are a couple of ways to go about this letter:
# 1 is a postcard.
“Hi Jack, I’m Nancy. I see that you own the property on 456 N. State Street in Baltimore. I’m looking to buy properties in that zip code. I’m prepared to pay cash within the next 30 days, and my funds are limited. Please call me as soon as you can before I decide to purchase another property. I look forward to hearing from you soon: (555)-132-4356.”
#2 is a more basic letter.
“Hi Jack, My name is Nancy, and I am looking to buy property in your area. Please call me (555)-132-4356.
Both of these options could work; it depends on the mindset of the seller. The postcard sets up a sense of urgency, which might give the seller that extra incentive to call you. It also doesn’t take any effort to open and is more likely to be read than a letter from an unknown person.
What do you do when Jack calls?
Most importantly, you listen.
Ask a question about the situation that Jack is in and then let Jack spill his guts.
We were given two ears and one mouth for a reason, so be quiet and listen to what Jack tells you. As he unfolds his story, pay attention to the clues about how motivated he is.
You may have to prompt him with questions like, “What is the desired price that you hope to get for your home?” And, “What do you think your home is worth?” Whatever the response is, also ask, “How did you come up with that figure?”
Jack’s answers will help determine his level of motivation. If he tells you his home is worth $175,000 and is hoping to get $150,000, he isn’t that motivated. But if his ask price is reasonable, go check out Jack’s condo.
Is there a significant difference between what the owner thinks it is worth and what he is willing to take? If yes, that’s a good sign that the seller is motivated, and it is worth pursuing.
Don’t write it, mail it, and then forget it.
Follow up and patience are key. People in this situation are being inundated with letters, so yours might have gone into the garbage before they ever read it. If you don’t hear back after a month, send another postcard. Remind them of your original note and that you are still interested in their property.
If you don’t get a call, mail them again. You can’t afford to be shy. And you must be persistent but in a friendly and kind way or you will never get a response. Write that one gracious letter in a sea of angry ones. You always attract more bees with honey than with vinegar.
Now let’s say that Jack never responds. After a certain amount of time decided by the county, his property goes up for a tax lien sale.
Now is your chance to start investing in tax liens. Here is how…
What’s a Tax Lien?
Let’s start at the beginning by defining a tax lien. When the homeowner fails to pay their taxes, the county puts a legal claim against the property for the unpaid amount. That legal claim is a tax lien. The property can’t be sold until the taxes and fees are paid in full.
According to Investopedia, tax lien sales are only legal in 29 states. But as an investor, you can buy the tax liens in any state where they are available.
Not all states are as brutal as Maryland. Some states will give you five years of not paying your taxes before placing a lien on the property, but it will happen eventually.
Even though they may not put a tax lien on the property right away, it will still be accruing penalties and fees on top of the regular tax bills.
Now you know what a tax lien is, let’s keep going.
So, How Does a Tax Lien Sale Work?
Once a homeowner is on the delinquent list, the county has the right to sell those taxes. But not right away! The amount of time varies by state and could be anywhere from 1-5 years.
When the time is up, and the taxes still aren’t paid, that property will be added to the tax lien properties list and eligible for a tax lien sale.
When a lien is issued, a tax lien certificate is generated, and those are auctioned off to the highest bidder like bonds. Usually, whoever is investing in tax liens is doing it as a means to earn capital or to buy discounted real estate.
Sound interesting?
Where do you Find all this Tantalizing Info?
Your first source of information is the local newspapers. The county will publish the tax lien properties list twice before the sale. Once you see the list, you can do your homework on each property that interests you.
The taxing authorities put the properties up for sale, mostly by auction. Some hold online auctions, and others are live at the county courthouse. Online auctions make investing from anywhere possible, which means more competition for each property.
Two Ways to Benefit from Investing in Tax Liens:
Scenario 1: Passive Returns
The investor buys the tax liens and waits until the owner pays them back. The good news for the investor is that they also earn interest on their money. It could be anywhere from 5% to 36% per year, but rates are generally in the 10-12% range.
But wait, there is more! The investor is also paid any penalties that the homeowner has accrued.
All the county cares about is getting its taxes paid, which the investor does when they buy the lien. So, you buy the tax lien, and Jack still owns his condo. You wait, and hopefully, he will pay. Although you never know when that might happen, it may be a couple of days, or it could be years.
But if your patient, it is a guarantee on your money and then some.
Scenario 2: The Road to a Larger Real Estate Portfolio
Let’s get back to Jack.
You buy the tax lien, and he never pays off his back taxes. You have the authority to start tax foreclosure proceedings. During the foreclosure, you can buy the property like anyone else who is interested. At the very least, you’ll be paid back your initial investment. Plus, you have the choice to buy the property at a discounted rate.
However, there is never a guarantee there will be equity in the property.
To learn more about tax liens, head over to the National Tax Lien Association site. There is a wealth of information to be found there.
Does it sound too good to be true?
Well, it does come with a steep learning curve and some risk. The investor MUST be familiar with the property they intend to buy the lien on. If it is a dilapidated home in a terrible neighborhood, walk away! The owner may never pay the taxes, and who is buying run-down houses in dangerous areas? No one, so you will probably never make your money back.
Purchasing tax liens can be worthwhile and profitable. But it’s best done by experienced investors who know the market and will take the time to do the research.
The Bottom Line
No matter what investing path you choose to take, you have to do the research and put in the legwork. No investment strategy is without risk.
Whether you choose to invest in delinquent tax sales or tax lien sales, do your proper due diligence to mitigate any disasters.