Tax Lien University

In thousands of counties across the United States, local counties and municipalities have millions of dollars in outstanding property taxes. Local governments rely on the revenue generated from real estate property taxes. The collection of delinquent real estate property taxes is necessary if the county is to fund important government services. Local governments collect delinquent real estate property taxes through tax sale auctions. The tax sale provides for the payment of delinquent property taxes by an investor. Tax sales will vary from state to state. Generally, tax sales can be classified as either a tax lien sale or a tax deed sale.

Notice of Sale

Usually, state statute requires that the tax collector or treasurer send delinquent owners a notice of their delinquency and the impending tax sale.

Once the designated time has passed, the local taxing district will generate a list of liens to be offered at the upcoming tax sale. This list will contain all the properties for which outstanding property taxes are due. Generally speaking, most taxing districts and counties will hold the tax sale once a year, while others may hold it several times a year.

To ensure timely notice, the taxing district must advertise a “Notice of Sale” in a newspaper of general circulation. In most cases, the notice will appear in the newspaper for two or three consecutive weeks prior to the tax sale. In most states, the tax collector is required by state law to send written notice of the looming tax sale to those with an interest in the property.

The notice is designed to allow tax delinquent homeowners adequate time to make payment of delinquent property taxes, fees and interest charges. Practically speaking, the list published in the newspaper is not the most reliable and up-to-date source, since many of the tax liens have been released as homeowners have stepped forward at the last minute to pay their property taxes.

Tax Sale List

After several notifications, the tax collector or treasurer will prepare and publish a list of tax delinquent properties. The tax sale list is usually published 30 to 60 days before the impending tax sale is scheduled to occur. The tax sale list is generally published in the legal section of local newspaper of general circulation.

In larger counties, like Los Angeles, California, investors may be required to pay a shipping and handling fee, as the list can be as large as a phone book. In most cases, the list is free and can even be downloaded from the county website.

Registration

Typically, prior to bidding, all U.S. citizens wishing to bid MUST provide the treasurer or tax collector’s office with a completed W-9 (W-8BEN for foreigners) and a bidder’s information form. Usually, these forms may be obtained from the tax collector or treasurer’s office.

The Tax Sale

A tax sale is usually held according to a published notice after a court has rendered a judgment for the tax and penalties and has ordered that the property be sold. Because a specific amount of delinquent tax and penalties must be collected, the purchaser at a tax sale must pay at least that amount. A tax lien certificate or tax deed is usually given to the successful bidder.

Not all tax sales are conducted the same. In fact, there are three different types of tax sales used to recover delinquent real estate taxes:

• Tax Liens (Tax Lien Certificates)
• Tax Deeds
• Hybrid Tax Deeds

As you will discover, some states, like Florida, participate in more than one type of tax sale. Please review the following diagram of the various tax sale systems:

Massive Success,

Steven E. Waters
Creating Wealth Without Risk™
http://www.taxlienuniversity.com/

PS: If you haven’t taken advantage of the FREE AUDIO offer I would suggest doing so NOW. Click here.

Lien Priority

Lien priority describes the “pecking order” of liens. In other words, the order of importance each lien has over other liens. It also refers to the order in which claims against the property will be paid off. “First come, first served” is a general law, which governs the priority of liens. Generally speaking, the priority of a lien is established by the date in which it was publicly recorded. Therefore, a lien that is recorded or filed first has priority over a lien that is recorded or filed later, unless a statute or law indicates otherwise.

For example: the Marriott Mansion is ordered to be sold by the court to satisfy Bill’s debts. The property is subject to a $50,000 judgment lien, incurred as a result of a suit to recover a mechanic’s lien. $295,000 in interest and principal remains to be paid on Marriott Mansion’s mortgage. This year’s unpaid real estate taxes amount to $5,000. The judgment lien was entered into the public record on February 7, 1996 and the mortgage lien was recorded January 22, 1992.

If the Marriott Mansion is sold at the tax sale for $375,000, the proceeds of the sale will be distributed in the following order:

• $5,000 to the taxing bodies for this year’s real estate taxes
• $295,000 to the mortgage lender (the entire amount of the mortgage loan outstanding as of the date of sale)
• $50,000 to the creditor named in the judgment lien
• $25,000 to Bill (the proceeds remaining after paying the first three claims/liens)

However, if the Marriott Mansion sold for $325,000, the proceeds would be distributed as follows:

• $5,000 to the taxing bodies for this year’s real estate taxes
• $295,000 to the mortgage lender (the entire amount of the mortgage loan outstanding as date of sale)
• $25,000 to the creditor named in the judgment lien
• $0 to Bill (the proceeds remaining after paying the first three claims/liens)

Although the creditor is not repaid in full, this outcome is considered fair for two reasons:

• The creditor’s interest arose later than the others, so the others’ interest took priority.
• The creditor knew (or should have known) about the creditors ahead of it when it extended to Bill, so it was aware (or should have been aware) of the risk involved.

One of the major benefits of investing in tax lien certificates is that real estate property tax liens are almost always senior to any other lien, with the exception of other real estate tax liens and state-held liens in Arizona and New Mexico. Therefore, it is important to research the property and its owner to determine if there are any outstanding liens against the property that will not be extinguished by the foreclosure of the tax lien.

Massive Success,

Steven E. Waters
Creating Wealth Without Risk™
http://www.taxlienuniversity.com/

PS: If you haven’t taken advantage of the FREE AUDIO offer I would suggest doing so NOW. Click here.

The Affects of Liens to a Title

First and foremost, real estate tax liens do not attach to people but to real property. Once a property becomes encumbered with a lien, it prevents the owner from selling the property until the lien has been released. Otherwise, an existing lien holder could enforce his/her claim through foreclosure, allowing him or her to take title to the real estate. This action effectively removes any claim to the property by junior lien holders.

Title Search

To avoid losing a property to a pre-existing or senior lien holder, a growing number of lending institutions require a title search to be conducted before lending money for the purchase of real estate. A title search is an examination of public records, laws and court actions to make sure that the seller is the legal owner and to reveal all other claims or encumbrances on the property.

Title Insurance

As an added precaution and condition of the loan, lenders will require borrowers to take out a title insurance policy. Title insurance is a contract under which the policyholder is protected from losses arising from defects in the title. A title company determines whether the title is insurable, after a review of the public records. If the title search proves little to no risk is present, a policy is issued. Unlike other insurance policies that insure against future loses, title insurance protects the insured against an event that occurred before the policy was issued.

Escrow Account

In addition, many lenders require that borrowers provide a reserve fund to meet future real estate taxes and property insurance premiums. This fund is often called a trust or escrow account. When the mortgage or deed of trust loan is made, the borrower starts the reserve by depositing funds to cover the amount of unpaid real estate taxes. If a new insurance policy has just been purchased, the insurance premium reserve will be started with the deposit of one twelfth of the insurance premium liability. The borrower’s monthly loan payments will include principal, interest, tax and insurance reserves, along with other costs, such as flood insurance or homeowner’s association dues.

When a lien is properly established, it becomes an encumbrance that sticks to the property, like a leach, and will not be removed or reinstated until all claims are satisfied.

Massive Success,

Steven E. Waters
Creating Wealth Without Risk™
http://www.taxlienuniversity.com/

PS: If you haven’t taken advantage of the FREE AUDIO offer I would suggest doing so NOW. Click here.

Simply put, a lien is a charge or even a claim that, once recorded correctly, encumbers someone’s property to legally enforce the payment of debts or obligations. The lien must be cleared before a warranty deed can be issued.

When a person borrows money to purchase real estate, the lender attaches a mortgage lien to the real estate. Once the lien has been correctly recorded, it encumbers the property and effectively secures the loan. In the event the borrower fails to pay the debt or mortgage, the lender can seize the property as collateral for the defaulting loan.

Liens against the title are not limited to security for loans such as a mortgage. Liens may be recorded against the property by federal, state, county and municipal agencies. When an individual fails to pay federal income taxes, the IRS may record a lien against the individual and his real estate. In addition, the state can record a lien for delinquent state income taxes. Finally, county and municipal taxing entities may record liens against the property for delinquent real estate taxes.

A lien is a legal instrument that allows an individual or agency to compel payment for services rendered or work performed.

For example: Let’s say you hired a carpenter to renovate your kitchen. After sometime, the carpenter invoices you for the work rendered. But, because of a job lay-off, you are either unable or unwilling to pay the bill.

What can the carpenter do?

The carpenter can record a Mechanic’s Lien against your real estate, effectively compelling payment for the work rendered. When you try to sell your home, the title company cannot issue title insurance until you have cleared the lien (paid the debt). Likewise, a lender would not offer financing to a borrower if the real estate securing the loan is encumbered with a pre-existing or senior lien. If the lender ignored the lien, they would risk a great chance of losing the property to the carpenter.

From a lender’s point of view, the Mechanic’s Lien threatens the lender’s interests in the real estate. Likewise, getting title insurance on a lien-encumbered property is nearly impossible.

Liens are not limited to lenders and contractors. A person, agency or corporation can use another person’s property to compel payment for work performed, services rendered or debts accrued by attaching a lien.

Not all liens are created the same.

Voluntary Lien: Basically, the borrower is voluntarily agreeing to use the property as collateral for the loan. The most common example of a voluntary lien is a mortgage. The borrower voluntarily allows the lien to attach to the real estate.

Involuntary Lien: A lien created by law or legal action without the consent of an owner. Examples include taxes, special assessments, federal income tax liens, judgment liens, mechanics liens and materials liens. Involuntary liens are not created the same. They are either statutory or equitable.

Statutory Lien: A lien that is created by statute. A real estate tax lien, for example, is an involuntary, statutory lien. It is created by statute without any action by the property owner.

Equitable lien: Is a lien, which arises out of common law. It is created by a court action. For example, a court- ordered judgment that requires a debtor to pay the balance on a delinquent charge account would be an involuntary, equitable lien on the debtor’s real estate.

Massive Success,

Steven E. Waters
Creating Wealth Without Risk™
http://www.taxlienuniversity.com/

PS: If you haven’t taken advantage of the FREE AUDIO offer I would suggest doing so NOW. Click here.

A general discussion on the taxation process will help you understand the context from which tax liens and tax deeds originate.

The collection of real estate property taxes is a major priority for local counties and municipalities. Delinquent property taxes create a serious cash-flow problem for local governments. If the county or taxing district is unable to collect property taxes, it is also unable to fund important government services like public schooling, police protection and, in some cases, medical services. Without the revenue generated from real estate property taxes, the county would literally go bankrupt.

Adoption of Budget

The taxation process begins with the adoption of a budget by the county or municipality. The budget outlines the financial requirements for the next fiscal year. The budget includes an estimate of any anticipated expenditures and income for the coming year. Any additional income needed to fund the budget will be raised from real estate property taxes.

Appropriation

Appropriation is the way a county or municipality authorizes the proposed budget, including expenditures and revenue sources. The process begins with the adoption of an ordinance that outlines the specific terms and conditions of the proposed taxation.

Tax Levy and Tax Rate

Through a tax levy, the extra money needed to fund the budget is passed on to local property owners. To do this, the county or municipality must generate a tax rate. To arrive at a tax rate, the total amount of money needed is divided by the total assessments of all real estate located within the taxing district.

For Example: Maricopa County, Arizona determines that $500,000 must be raised from real estate taxes. The Assessor’s Records indicate that there is $10,000,000 in taxable real estate within the county. So, the county computes the tax rate:

$500,000 divided by $10,000,000 = .05 or 5%

The tax rate may be stated in a number of ways. Generally, it is expressed in mills. A mill is 1/1,000 of a dollar, or $ .001. The tax rate may be expressed as a mill-per-dollar ratio, for instance in dollars per hundred or in dollars per thousand. A tax rate of .03 or 3 percent could be expressed as 30 mills or 3/1000ths of assessed value.

The Assessor

The County or Municipal Assessor is responsible for discovering, listing and valuing all property within the county, and must follow state laws when meeting these responsibilities. The assessor’s goal is equalization of property values. Equalization allows the burden of taxes to be distributed fairly and equitably among property owners.

Notice of Valuation

Each year the assessor is required to notify taxpayers of the value of their real property. The notice, or valuation, describes the property, gives the actual value for both the prior and current year, and provides an opportunity to present an objection of the assessor’s valuation.

The deadlines for appealing a valuation are enforced by state statutes.

The “Notice of Value” is not a bill, but a document that contains important information about the property and its value, which is used to determine each homeowner’s real estate tax bill.

It is the assessor’s job to identify and appraise all real estate, both business and personal property, throughout the county or taxing district and then notify the owners of their findings through the “Notice of Value.”

Throughout the year, appraisers who are employees of the Assessor’s Office travel throughout the county gathering property information to determine its value. The results of their efforts are shown on the “Notice of Value.”

Appealing The Tax Assessment

As home values increase, so do property assessments. A higher assessment means owners will pay more in property taxes. If a homeowner feels that the value the assessor has placed on their property is incorrect, they may file an appeal.

Taxpayer

Property owners have specific rights, remedies and responsibilities in the assessment process. As stated earlier, if they disagree with the property value, they can file an appeal with the assessor. In addition, they have the responsibility to provide accurate information to the assessor about any property they own and to participate in budget hearings held by school boards, cities, towns and special districts which levy taxes on their property.

Tax Bill

A property owner’s tax bill is computed by applying the tax rate to the assessed valuation of the property.

Generally, one tax bill that incorporates all real estate taxes levied by the various taxing districts is prepared for each property. In some areas, each taxing body prepares separate bills. Sometimes, the real estate taxing bodies may operate on different budget years so that the taxpayer receives separate bills for various taxes at different times during the year.

For example, if a property is assessed for tax purposes at $90,000, at a tax rate of 3 percent, or 30 mils, the tax
will be $2,700 ($90,000 x .03).

If an equalization factor is used, the computation with an equalization factor of 120 percent will be $3,240:
$90,000 x 1.20 = $108,000, then ($108,000 x .03 = $3,240).

The due dates for payments (also called the penalty dates) are usually set by statute. Taxes may be payable in 2 installments (semiannually), 4 installments (quarterly) or 12 installments (monthly). In some areas, taxes are due at the beginning of the current tax year and must be paid in advance (for example, the year 2000 taxes must be paid at the beginning of 2000). In other areas, taxes are payable during the year after the taxes are levied (2000 taxes are paid throughout 2000). And, in still other areas, a partial payment is due in the year of the tax, with the balance due in the following year (2000 taxes are payable partly during 2000 and partly during 2001).

Some states offer discounts to encourage prompt payment of real estate taxes. Penalties, in the form of monthly interest charges, are added to all taxes that are not paid when due. In addition, the property cannot be sold or refinanced until the tax bill or tax lien has been cleared.

Massive Success,

Steven E. Waters
Creating Wealth Without Risk™

http://www.taxlienuniversity.com/

PS: If you haven’t taken advantage of the FREE AUDIO offer I would suggest doing so NOW. Click here.