Recently someone asked me what would happen if they purchased a tax deed in an “upset” tax sale in Pennsylvania that had a mortgage on it; would they be liable for the mortgage? Pennsylvania actually has three different tax deed sales and while most liens do not survive the judicial sale and the repository sale, all liens do survive the upset sale. This means that if you purchase a tax deed at the upset sale you are liable for any other liens on the property. You would have to pay these liens or risk loosing the property. If you bought this deed in your own name, your credit would also be affected if you do not satisfy these liens.
A person is this situation has made three costly mistakes that many first time deed purchasers make. Their first mistake was not checking into the state laws for deed sales. Each state has different laws regarding tax foreclosure sales. In most states other liens are wiped out by a tax sale, but this is not true for every state and this is something that you need to know about before you bid on a property in a tax deed sale. Even in states where most liens are extinguished by a tax sale, some liens may survive the sale. You need to know what liens survive a tax deed or tax foreclosure sale in your state and you need to know how to check for these liens.
The second mistake made in this situation was not having done proper due diligence on the property and checking for other liens. While this step is not always necessary when you’re investing in tax liens, it is critical when you’re buying a tax deed. After you’ve purchased a tax lien certificate on a property, if you decide that you’ve made a mistake and the property is not worth it, you can always walk away and only loose your initial investment. You are not the owner; therefore, you have no liability. If however, you purchase a tax deed on a property, you become the owner of the property. You are now responsible for any liens on the property that survived the tax sale as well as for current taxes and assessments on the property.
The third costly mistake made in this situation was buying the property in the investor’s name instead of in the name of a business entity. Because the tax deed was purchased in the investor’s name, they became personally liable for the property and any other liens held against it. As the owner of record, they would also be liable if anyone got injured or hurt on the property, and as mentioned in the previous chapter, they are also responsible for current taxes and any other assessments or association fees if the property is in a community. If they decide that the property isn’t worth it, they cannot just walk away and only loose their original investment. Now there is more at stake. If they had purchased the deed in the name of a business entity that they had previously set up for this purpose, however, they would not be held personally liable for all of these things.
To learn more about asset protection and business entities for tax deed investing you can download this free recording of a teleseminar interview that I did with Texas attorney and tax deed expert Darius Barazandeh. To download the replay of this teleseminar, just right click on the following link and choose “save target as’ to save it to your computer and listen to it any time you like. Here is the link: http://tinyurl.com/yabhn2.
To learn more about how to do due diligence for tax lien and tax deed investing and how to avoid the risks involved, check out my step-by-step audio course at www.taxlieninvestingsecrets.com.
Sunday, October 22, 2006
Tax Lien Investing: Are You Making This Critical Error?
Recently I got a question from someone who was looking into getting involved in tax lien investing in the state of Indiana. She was surprised at the amount of money being paid for tax lien certificates and was wondering if it was worth it. It seems like the people that she was getting involved in tax lien investing with were making some of the typical mistakes that new investors make. They were buying liens on “junk property” and she could not see the benefit to this. Also she witnessed institutional buyers bidding large premiums for tax liens and couldn’t understand how they are making a profit on their investment.
The reason for her confusion has to do with the type of bidding method used (premium or “over-bid”) in Indiana and the Indiana state laws that govern the tax lien investing process. What she witnessed in Indiana is extreme competition due to favorable state laws for tax lien investing. In Indiana there is a hefty penalty (10 – 15%) on the certificate amount and you do get interest on the premium or “over-bid” amount if the lien is redeemed. You also get interest (10% per annum) on any subsequent taxes paid as well. The redemption periods vary from county to county, but are short - from only four months to one year. And all you have to do to foreclose is petition the court for the deed to the property. Everything has to be done in a timely manner however, or you could loose your claim on the property.
When most new investors go to these sales and see the large over-bids paid for tax liens, they assume that the companies and investors that are paying these large amounts are doing so in hopes to foreclose on the property. While occasionally that might be true, whenever you see banks doing this there is usually another reason for it. Banks do not want to be in the property management business, they want to invest their money at higher returns than then they can get by lending it out, and they wish to diversify their investments. The reason why they are paying so much for these tax liens is because it is worth it – they are making good profits on their investment.
Because they have the ability to let large amounts of money sit in an investment, institutional buyers can bid large amounts on properties that they think will redeem. And because they have done their due diligence on these properties, they know that even if the property doesn’t redeem they will be able to sell it and make a hefty profit. The danger for new investors is that they see these institutional lien buyers and other seasoned investors paying large premiums for tax liens and they start paying large premiums for tax lien certificates on properties that they did not check out. Maybe they heard about tax lien investing from a real estate guru who touted tax lien investing as being totally risk free and “government guaranteed.” What they need to realize is that no one guarantees that you will get paid on a tax lien certificate and that the only thing guaranteeing the lien is the property. Therefore the property better be worth more than what you paid for the lien. And because you will have other expenses involved in your investment and you will have to pay subsequent taxes, the property should be worth a few times what you paid for the tax lien certificate.
If you are considering tax lien investing you might want to read all of the articles on the article page of taxlienlady.com at www.taxlienlady.com/articles.htm, and the rest of the articles on this blog. Here you will find a wealth of free information about how to due diligence for tax lien investing and how to determine if tax lien investing is right for you. If you want more detailed information about how to start investing in tax lien certificates and tax deeds you may want to take a look at my step-by-step audio course at www.taxlieninvestingsecrets.com.
For more information about tax lien investing you can also send an e-mail to MoreTips@taxlienconsulting.com.
Happy and Prosperous Investing,
Joanne Musa
The reason for her confusion has to do with the type of bidding method used (premium or “over-bid”) in Indiana and the Indiana state laws that govern the tax lien investing process. What she witnessed in Indiana is extreme competition due to favorable state laws for tax lien investing. In Indiana there is a hefty penalty (10 – 15%) on the certificate amount and you do get interest on the premium or “over-bid” amount if the lien is redeemed. You also get interest (10% per annum) on any subsequent taxes paid as well. The redemption periods vary from county to county, but are short - from only four months to one year. And all you have to do to foreclose is petition the court for the deed to the property. Everything has to be done in a timely manner however, or you could loose your claim on the property.
When most new investors go to these sales and see the large over-bids paid for tax liens, they assume that the companies and investors that are paying these large amounts are doing so in hopes to foreclose on the property. While occasionally that might be true, whenever you see banks doing this there is usually another reason for it. Banks do not want to be in the property management business, they want to invest their money at higher returns than then they can get by lending it out, and they wish to diversify their investments. The reason why they are paying so much for these tax liens is because it is worth it – they are making good profits on their investment.
Because they have the ability to let large amounts of money sit in an investment, institutional buyers can bid large amounts on properties that they think will redeem. And because they have done their due diligence on these properties, they know that even if the property doesn’t redeem they will be able to sell it and make a hefty profit. The danger for new investors is that they see these institutional lien buyers and other seasoned investors paying large premiums for tax liens and they start paying large premiums for tax lien certificates on properties that they did not check out. Maybe they heard about tax lien investing from a real estate guru who touted tax lien investing as being totally risk free and “government guaranteed.” What they need to realize is that no one guarantees that you will get paid on a tax lien certificate and that the only thing guaranteeing the lien is the property. Therefore the property better be worth more than what you paid for the lien. And because you will have other expenses involved in your investment and you will have to pay subsequent taxes, the property should be worth a few times what you paid for the tax lien certificate.
If you are considering tax lien investing you might want to read all of the articles on the article page of taxlienlady.com at www.taxlienlady.com/articles.htm, and the rest of the articles on this blog. Here you will find a wealth of free information about how to due diligence for tax lien investing and how to determine if tax lien investing is right for you. If you want more detailed information about how to start investing in tax lien certificates and tax deeds you may want to take a look at my step-by-step audio course at www.taxlieninvestingsecrets.com.
For more information about tax lien investing you can also send an e-mail to MoreTips@taxlienconsulting.com.
Happy and Prosperous Investing,
Joanne Musa
Monday, October 09, 2006
More Book Reviews from the Tax Lien Lady
Here are my reviews of three of the books that I have read in the past couple of months. These books are not about tax lien investing but about building wealth, becoming successful at your business and successfully marketing your business. I found each of them to be very helpful to me and I thought that you would like to know about them. You can find all of my book reviews on Amazon.com. You can order any of these books, or find out more about them, by clicking on the title of each one.
Outrageous Business Growth by Debbie Bermont
A Must Read for Business Owners and Entrepreneurs
In Outrageous Business Growth, Debbie Bermont explains each of the three principals that make up her formula for business success. She starts with explaining how to develop an internal prosperity consciousness, so that your business will thrive no matter what is going on in the economy. She than shows you how to align yourself only with people who want to buy your products or services so that you don't waste time and money advertising to the wrong market. Finally she explains how to develop lifetime relationships with your customers to create customer loyalty and increased sales for your business. This version of the book comes with a free one year e-subscription to Outrageous Business Growth Weekly, a $97.00 value.
The Millionaire Maker by Loral Langemeier
Best Book About Money
Out of all of the books that I have read about how to make and manage money - this one is by far the best! Loral Langemeier actually shows you step-by-step how to develop your own plan for becoming a millionaire. In The Millionaire Maker, she explains her system for developing wealth, which is very different from what most financial professionals advise their clients. She explains each of the components of her "Wealth Cycle" in detail by using real life example from her clients. This book will show you how to get out of debt while building your net worth, how to create a business to give you more money, and how to get your assets working harder for you - creating passive income. This book comes with two free tickets to see Loral live at her Team Made Millionaire event. These tickets are worth at least ten times the price of the book.
Web Wonder Women by Lynne Klippel
A Must Read for Women in Business
Wow, this book is excellent! A must read for any women in business. Not only is Web Wonder Women an inspiration to all women, but it's a great place to find services from other woman owned businesses, and it's a great place to find Joint Venture partners. I purchased this book because it highlighted a couple of my mentors. After reading Web Wonder Women, I've found more mentors for other areas of my business and my life. This book is just chock full of ideas to help your business, tips on how to get started in different businesses, managing your time, balancing your life, and marketing your business. I am really enjoying the bonuses that come with this book. There are so many that I haven't taken advantage of all of them yet. The bonuses that you get when you purchase Web Wonder Women are worth many times the price of the book!
Outrageous Business Growth by Debbie Bermont
A Must Read for Business Owners and Entrepreneurs
In Outrageous Business Growth, Debbie Bermont explains each of the three principals that make up her formula for business success. She starts with explaining how to develop an internal prosperity consciousness, so that your business will thrive no matter what is going on in the economy. She than shows you how to align yourself only with people who want to buy your products or services so that you don't waste time and money advertising to the wrong market. Finally she explains how to develop lifetime relationships with your customers to create customer loyalty and increased sales for your business. This version of the book comes with a free one year e-subscription to Outrageous Business Growth Weekly, a $97.00 value.
The Millionaire Maker by Loral Langemeier
Best Book About Money
Out of all of the books that I have read about how to make and manage money - this one is by far the best! Loral Langemeier actually shows you step-by-step how to develop your own plan for becoming a millionaire. In The Millionaire Maker, she explains her system for developing wealth, which is very different from what most financial professionals advise their clients. She explains each of the components of her "Wealth Cycle" in detail by using real life example from her clients. This book will show you how to get out of debt while building your net worth, how to create a business to give you more money, and how to get your assets working harder for you - creating passive income. This book comes with two free tickets to see Loral live at her Team Made Millionaire event. These tickets are worth at least ten times the price of the book.
Web Wonder Women by Lynne Klippel
A Must Read for Women in Business
Wow, this book is excellent! A must read for any women in business. Not only is Web Wonder Women an inspiration to all women, but it's a great place to find services from other woman owned businesses, and it's a great place to find Joint Venture partners. I purchased this book because it highlighted a couple of my mentors. After reading Web Wonder Women, I've found more mentors for other areas of my business and my life. This book is just chock full of ideas to help your business, tips on how to get started in different businesses, managing your time, balancing your life, and marketing your business. I am really enjoying the bonuses that come with this book. There are so many that I haven't taken advantage of all of them yet. The bonuses that you get when you purchase Web Wonder Women are worth many times the price of the book!
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