I’ve been hearing an advertisement on the radio for a seminar on “real estate investment.” I’m also seeing ads on Facebook.
The seminar is about investing in tax liens. I had heard about tax sales but until a few years ago knew very little about them. Basically, if homeowners don’t pay their property taxes within a certain time frame, the town they live in can put their property into a “tax sale.”
One night I was at covering a township meeting as a reporter for the local newspaper. A woman came forward during the open public comment period asking for some help. Her past due tax bill was put into the township’s tax sale. At these sales, investors pay the taxes in exchange for a lien. They then collect fees and interest on the original amount after a set period of time. If the taxpayer does not pay within the time frame, the investor can foreclose and acquire title to the home.
In the woman’s case, she missed some payments and a company had acquired a lien against her property. It was an oversight on her part, the taxes had previously been paid for through the mortgage company and once the mortgage was paid off it was up to the homeowner. Her husband had always taken care of the bills but then he died and payments were overlooked. She was on the verge of losing the home she lived in for decades for far less than it was worth.
The problem was the company that held her lien did not get that interest rate by playing fair. At a tax sale, instead of bidding the price up, investors are supposed to compete to lower the interest rate. The maximum allowed in the state in question was 18%. Instead of bidding against each other, several investors agreed, before the sale, who would bid on each property. Therefore, each one got the highest interest rate possible because no one else bid against them.
I wrote several stories over the next several months and as a result I heard from many people in similar situations. This woman’s case and others spurred class action lawsuits. There were also criminal indictments and guilty pleas. In the end the woman got to keep her home.
I wondered how homeowners could protect themselves from losing their home due to unpaid property taxes. While doing some research, I was dismayed when all I could find was information on how to make money off of people who didn’t pay their property taxes — not how to help people get out of a bad situation.
I heard many stories about how the taxes got missed. Sometimes, it was not because they couldn’t pay the original amount. For example, an elderly woman was hospitalized for several months. Her daughter didn’t know the taxes were due so they didn’t get paid.
Other reasons the taxes might not get paid, include job loss or other temporary economic hardships. In those cases, I found that many people did not understand how the process worked. Most assumed that that had to pay the oldest taxes off first (the ones covered by the lien). In the state in question, once the lien is in place, the homeowner has up to two years to pay those taxes off. Homeowners can also pay the taxes right up until the tax sale begins, to prevent the lien from being acquired in the first place.
It was an investor who told me the homeowner should pay the next tax bill before it goes into the tax sale. He said he didn’t really want to actually acquire any properties; he was merely involved to get the interest. He said the legitimate investor was doing the homeowner a favor, by giving them up to an extra two years to pay the taxes. I didn’t think it was much of a favor to milk them for every penny they had but if the game is played fairly, then yes, I suppose it could help if the situation was merely temporary.
The problem in this case, once the first lien was in place, all the investor had to do is pay the next period’s taxes before the homeowner did, and get the same interest rate without having to bid. With interest and fees, soon the homeowner ended up owing many times what the original tax bill was. Many people simply gave up and sold their home to cover the debt.
Some people never got caught up and sometimes the investor did acquire the title to the property. To get their money back, they had to sell the home. It does not always work out well.
One investor who contacted me had foreclosed on a property and when he went to check on the home he found the owner inside — or what was left of him. The owner stopped paying the bills because he had died. Who wants to buy a home where a dead body was found?
Mind you, an investor cannot start foreclosure proceedings until two years after acquiring the lien. And the tax sale may not occur for several months to a year after the taxes are past due. It also takes time for the court to process the foreclosure. So this pour soul could have been dead for four years and nobody ever noticed!
Sadly, a quick internet search will show you that the death of the tax payer seems to be a fairly common reason the taxes or mortgages don’t get paid. I found many stories about bodies being found in foreclosed homes.
The moral of this story is if you end up with a tax lien against your property do some research to find out what your rights are. The rules vary by state. Your property taxes also pay the salary of the tax collector — talk to them. Make sure someone else knows when and how to pay your taxes and other bills if you can’t. And finally, get to know your neighbors so they will notice when you are missing long before your remains are found by the person who forecloses on your home.