More on this book
Kindle Notes & Highlights
tax lien certificates.
As of this writing, the following are typical yields on common investments: 5-year Treasury Note 2.95% 10-year Treasury Bonds 3.77% High Grade Corporate Bonds 3.80% Money Market Funds 2.50% Utility Stocks 5.8% 1-year Certificates of Deposit 2.75%
we need to reflect that, particularly after taxes and inflation, these yields are very low.
These certificates solve the government’s need for a predictable, adequate cash flow while solving the investor’s need for a safe, high rate of interest.
Tax lien certificates work like this: Unpaid taxes become a lien on the property. This means that the tax obligation is recorded in the government’s property records, and until the taxes are paid, the lien remains.
If the taxes are not paid for a long enough period, the owner will lose the property. Meanwhile,
Government-issued tax liens are super safe; they’re superior even to first mortgages.
By stepping into the shoes of the government, you obtain a right to get the government’s interest and have the same rights over the property that the government would have.
In California, if an owner does not pay the property taxes, the property becomes “tax defaulted,” and the owner has five years to redeem the property. If the owner redeems, he must pay interest, penalties, and costs to the tax collector. If the owner does not redeem, the tax collector can sell the property.2 The buyer at this sale will never be paid any interest. He is bidding on the property, and that is all he will get.
The point here is that tax lien certificates should be prized as high-yield interest investments.
At these rates of interest, this is more than just nice; it is a road to real wealth.
The second important trait of tax lien certificates is their safety. Tax lien certificates are secured by real property, which has been appraised by a government agency at an amount usually 10 to 100 times the amount of the lien.
when you buy a tax lien in Arizona, for example, if you are not paid back your principal plus interest, three years later you can obtain the property, free of any mortgage.
One of the most popular auctions of tax lien certificates is in Sedona, Arizona, in February.
If you are going to these locations for investment purposes, the cost of your travel is added for tax purposes to the cost of the certificates you buy, and you will therefore pay less in taxes when you sell the certificates because you will have less of a profit. Furthermore, if you can make the case that you are in the business of buying tax lien certificates, your travel expenses are deductible immediately. As a rule, you cannot deduct travel to learn about or investigate investment opportunities.
Tax lien certificates are not primarily growth investments. Their main attraction is their stunningly high interest rate.
Tax lien certificates, like other income investments, carry no market risk. Delinquent property owners are compelled by law to pay high rates of interest; they have no real choice in the matter except to lose their properties.
Concerning the safety of tax liens, most tax liens are paid off with interest.
But tax lien certificates are more: They are a secured investment. If the landowner does not pay off the lien, you, as the holder of the tax lien certificate, can look to the property itself to pay off the lien. Because the amount of the tax lien is rarely more than a small percentage of the value of the property, this lien is completely secured.
Anyone investing in tax liens needs to assume the worst case: that the money will be unavailable until the debtor pays or the property can be sold.
Your level of comfortable risk is determined in large part by your personality. However, appropriate risk depends as much or more on external factors.
But stocks and bonds are not recommended for their liquidity.
There are several ways to check out areas within a county.
one of the best sources is the staff of the local tax collector.
These officials can tell you not only which areas are nicest, but also which areas produce the highest rates of redemption.
Augment [your] comfort by sticking to good neighborhoods, by investing only in improved properties, by limiting yourself to residential properties, and by checking the assessment to be sure that the improvement represents the lion’s share of the value of the property.
Professional investors therefore select properties that present a minimum possibility that hazardous substances are present.
Occasionally, you will learn that the neighborhood is redeveloped industrial land.
Have a Phase 1 environmental evaluation performed. A Phase 1 evaluation is designed to confirm that hazardous substances have never been present on a property.
Phase 1 investigations are very popular because they are quick and inexpensive. When they bring trouble, it is because they are used in an inappropriate situation.
Until these taxes are paid, a penalty is assessed of “sixteen per cent per year simple until paid,”
The county treasurer shall maintain a record of delinquent taxes, listing the properties, owners of record, and amount of taxes, penalties, and interest due.
The county treasurer will post a correct copy of the list and auction notice near the outer door of the office. The list and notice shall remain posted for at least two weeks before the date of the sale. He must also give notice to the delinquent owner.
The tax lien sale is held in February of each year. All liens are put up for sale.
If no bid is made on a lien, the treasurer tries to sell it each following day, Sundays and holidays excluded, until the tax lien on each parcel has been sold.
A real property tax lien shall be awarded to the person who pays the whole amount of delinquent taxes, interest, penalties, and charges due on the property and who in addition offers to accept the lowest rate of interest on the amount so paid to redeem the property from the sale, which may not exceed “sixteen per cent per year simple until paid,” and “a fraction of a month is counted as a whole month.”
If a tax lien is not sold, it is assigned to the state, and the county treasurer will sell the certificate of purchase to any person who pays the whole amount of the taxes, including interest, penalties, and charges. A tax lien certificate bought this way will yield the full 16% maximum without the competition of an auction.
At any time beginning three years after the sale of a tax lien but not later than ten years after the last day of the month in which the lien was acquired, if the lien is not redeemed, the purchaser or the purchaser’s heirs or assigns … may bring an action to foreclose the right to redeem.
Instead of foreclosing in court after three years, the holder of the tax lien certificate can decide to wait five years. At that time, the lienholder can simply go to the county treasurer and apply for and receive a treasurer’s deed to the property.
When a property owner fails to redeem the CP prior to the expiration of three years from the date the parcel was first offered at sale, the investor may apply for a court ordered deed to the property (judicial foreclosure).
In Colorado, you have the winning bid if you are willing to fork over the most cash to the state.
The tax sale is held on or before the second Monday in December of each year.
The sale continues from day to day, except for Saturday and Sunday, until all the certificates are sold
Each tax lien shall be sold for an entire piece of property.
The successful bidder will get a “Certificate of Purchase,” which indicates the rate of interest.
You can bring a “quiet title” action (a lawsuit to confirm that you have good title) to cut short this possibility.
Telluride, CO 81435
THE TAX LIEN SALE TAKES PLACE THE LAST MONDAY IN NOVEMBER.
It is imperative that a W-9 form is completed
You must complete a W-9 at time of registration or have one on file with the San Miguel County Treasurer’s Office to participate in our Tax Lien Sale.
