If you have insomnia like me, you have probably stayed awake late enough to see and hear the loud infomercials advertising towards rookie investors on how to get rich buying properties for pennies on the dollar through delinquent tax sales. Sounds great? Sure. Is it true? Not exactly.
Investing through delinquent tax sales was once a golden, little-known opportunity to potentially obtain a property or at least a steady & stable interest return on your investment. The same investors would get together each year and purchase as many tax liens and/or tax deeds (depending on the state) as they possibly could. Delinquent taxes are secured by the property itself, which makes tax lien and deed investing stable and secure investment.
Over the past decade, the tax sale industry has had a shift of the large institutional investors being pushed out by the small investment funds and/or mom & pop investors. Don’t get me wrong, the institutional investors still dominate certain markets like the Florida tax lien auctions but the laws are built to favor them, so the smaller investors do not fare as well since the capital resources are drastically different. But that is not the point. Institutional investors or those that have learned through trial and error have a solid understanding of the laws and statutes that govern tax sales.
With the influx of new blood interested in tax sales, inexperience is causing many investors to lose their shirts. The real estate market has boomed over the last decade and the cost to entry, even at tax sales, is higher than ever. This leaves little to no margin for error. Believe it or not, those late-night infomercials do not tell you all the details during their 90-seconds of airtime. That’s right, it takes a little longer than 90-seconds to become a Jedi tax sale investor. We are not going to Yoda you through your investing journey, but we will share some of our insight.
The most common phrase investors researching tax sales hear is “sold free and clear”. This is hardly the case. Especially in Florida. Florida is unique in that a tax lien is sold prior to the property being sold through a tax deed auction. The tax lien investor does not necessarily receive the property after the redemption period expires. The tax lien investor must first apply to the county to sell a tax deed. The base bid will be enough to cover the initial investment plus interest and penalty owed to the tax lien investor. The catch is that the county sells the property through that tax deed sale to satisfy the tax lien investor. The only way a tax lien investor will receive the property is if the property does not sell at the tax deed auction.
The tax sale process in Florida is all completed through a non-judicial process which means the property is sold without a foreclosure judgment by the court. This does speed up the sales process but scares title insurers from issuing a title policy for tax sale properties. Another catch to Florida tax sales is that municipal liens do not need to be recorded in the chain of title to be enforced. Because of this, municipal liens survive a tax sale as they are not always collected for in the base bid of the sale. Since we hate seeing our clients or any investor lose money, here is a quick list you can reference of the liens that are extinguished through the tax sale and those that survive..
Liens and Encumbrances Extinguished by a Florida Tax Deed Sale
Prior owner (delinquent taxpayer)
Deeds of Trust
IRS Liens (additional time for noticing required)
Liens and Encumbrances that Survive Florida Tax Deed Sales
Weed (Grass Cutting)
Since Municipal Liens do not always show up in county records, investors should either order a municipal lien search or call each department individually and inquire if there is a lien or outstanding balance owed, find out how much it costs to pay off and see how flexible they are with negotiating the payoff down. Oftentimes if there is overbid money from the tax deed sale, the city can apply for those funds to help satisfy these liens but that amount does not always cover the cost so you should be sure to build the payoff amount into your investment strategy as a hard cost. Remember, a tax delinquent property is a non-performing asset to a county. They are not receiving the tax revenue they need for vital county functions. As an investor you stand to profit but so does the county. Be fair and keep this in mind when negotiating a municipal lien payoff. This may help increase your bottom line.
Another area investors lose money with Florida Tax Deeds is not budgeting to make the chain of title insurable. Since Florida is a non-judicial foreclosure state, title insurers will require additional curative work to ensure all parties who lost interest through the tax sale process were notified to meet statutory requirements. This is our specialty. Tax Title Services is the fastest, most cost effective, and creator of the Tax Sale Certification process.
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