Category Archives: Investing Methods

Wholesaling

Marketing Your Property And Remaining in Control

You should already have your buyers list created. If not, you really need to master the art of being a great marketer. Getting the property under contract to purchase is half the battle. If you can’t find someone to buy the house you wasted your time, money and effort.  The most important thing you can do to sell a property fast if you don’t have a buyers list yet  is,

Continue reading Marketing Your Property And Remaining in Control →

Lease Option

How To Make An Extra 25K on Equity Splits

Have you ever come across a seller who is motivated to do a lease option with you, but not quite motivated enough to give up on all the future appreciation of the property? This is a perfect scenario to try using an Equity Split.

You may be familiar with the concept of “equity splitting.” This is where you and the seller essentially partner up and agree to split the profit from the resale of the property according to some specific ratio.

Here is how I teach my students to make up to an extra $25,000 or more on every equity split they do. It’s call a Hybrid Equity Split and I think you’ll like this simple yet highly profitable technique and want to add it to your toolbox of investing ideas.

The best way to understand the concept is to walk through a case study of a deal we did with the owners of a two bedroom, two bath property. The sellers were motivated because the husband had been transferred in his job. When I met with them we talked through doing a 8 year lease option on the property. Right at the very end they balked and I pulled out this Hybrid Equity Split idea to sweeten the deal just enough to get it closed.

The terms of the lease option were as follows: A term of 8 years with a monthly rent of $913 and a purchase price of $102,000. The up-front option consideration I paid was $1.

Now most investors would structure their equity split as follows: anything they as an investor sold the property for over $102,000 they would split with the seller on a 50-50 basis. For example, if they sold the property on a 2 year rent to own for $120,000 then they would give the seller the first $102,000 and split the remaining $18,000 profit 50-50. In other words, they would make $9,000 from the resale plus any cashflow the property generated over the two years.

The way we structured our Hybrid Equity Split was as follows: we did the 8 year lease option as described above and agreed that we would also do an equity split on anything we re-sold the property for above $127,000. In other words, the first $25,000 in profit would be ours alone and we would do the equity split on any amount above that.

By the way, why offer 50-50 to a seller when they will often times be thrilled with substantially less? We agreed they would get 12% of the amount we resold the property for over the $127,000!

How did we get the seller to agree to this? We simply asked the seller, “Mr. Seller, if there was a way where you would get your full $102,000 we talked about and on top of that you would get a chunk of the future appreciation from the resale of the property is that something we should talk about, or probably not?” (Those of you who have gone through any of our books or courses will recognize the “negative phrasing” I just used there.)

Once the seller says that yes he is in fact interested in talking about that you simply go on to explain, “Well, I don’t know if we could do this, but what if we set a percentage that you would get from the resale of the property. Obviously we would need to build in a minimum base profit of $25,000 in to make this worth our time, but what if we said that anything we sold it for down the road over $127,000 you would get set percentage of that? What I mean is that you would get ALL of the first $102,000, that’s completely yours, and you would also get lets say 10% or maybe a little more of any amount we sold it for over $127,000. Is that something we should talk through, or probably not?”

Our seller agreed to this, after negotiating strongly to move the percentage from 10% to 12% (notice he just accepted the $25,000 base profit!) We then sold the property on a 2 year rent to own with $3,000 non-refundable option money, for a rent of $1,000 per month, and a final price of $120,000.

While it looks like this tenant buyer will end up buying at the end of their term, if they don’t then we pocket the $3,000 option payment plus the $2,088 of cashflow ($87/month x 24 months) and simply go find a new buyer. At that point the we’ll sell the property for more money (probably $134,900) collect another option payment, and get more of a cashflow because the market rents have increased.

Key Point: You are only doing the equity split on the money from the resale of the property. You get to keep all of the cashflow and all of the option money that is left if a tenant buyer decides not to exercise their option.

Notice in this case, even if you offered the seller a “50-50” equity split on the amount over $127,000, you would still make 90% of the total profit! How? First you made $5,088 from your first tenant buyer, you’ll make at least another $2,000 in cashflow from your second tenant buyer. Plus you will make $28,950 from the difference in your option price and your selling price (you get 100% of the first $25,000 plus 50% of the next $7,900.) All totaled you would make 36,038 from your equity split. Your seller would pocket an extra $3,950 (50% of the amount you sold it for over $127,000.) In this case you made 90% of the profit from your “fifty-fifty” equity split!

Just remember to build in a base profit for yourself on any equity split deal you do. Even if it’s only $10,000 or $15,000 before you split the rest of the money that is PURE profit for no extra work.

The final point when you are negotiating an equity split is the manner in which you approach the seller. It’s critical that the seller doesn’t feel you are chasing after them like a hungry buyer desperate to make a deal. You need to maintain your “reluctant buyer” status.

The best way to be a reluctant buyer is to use the language patterns that reluctant buyers use. Qualify your statements with phrases like, “Well, I don’t know if we could do this, but what if…” Or, “My partner might not go for this idea, but what about…”

 

Tax Liens

Tax Liens in regards to Property

Tax liens in connection with property taxes

Unlike personal debts, tax liens on real estate “run with the land”; that is, a property owner becomes responsible for payment even if the tax obligation was incurred by a prior owner. Depending on the law of the State or jurisdiction, the owner of the property may also be personally liable for payment of the taxes.

Payment of a tax lien may occur through various methods:

  • Payment may be made directly by the property owner or, in many cases, indirectly by the mortgage holder using an escrow account. Notice is given both to the property owner and mortgage holder when a property tax is delinquent; thus, even if the property owner does not have an escrow account on the mortgage, the mortgage company will receive notice of the delinquency and may pay the tax. The mortgage company will then demand repayment from the owner/borrower and/or create an escrow account to recoup the proceeds, since the mortgage company might lose some of the value of its mortgage lien if the property were sold by the taxing agency to satisfy unpaid taxes foreclosure.
  • If a property is sold by the owner prior to tax foreclosure by the government body, the tax lien (which is generally discovered as part of a title search) is usually paid as part of closing costs from the sale proceeds.
  • Procedures vary from State to State. Generally, in the event a tax lien on personal property is not paid within a specified time (and after several notices are generally given), the property may be seized and sold at foreclosure sale. On real property, one of two methods may be used: either the property may be seized and sold (a tax deed sale), or in some States the tax lien may be offered to investors (in the form of a tax lien certificate) with an accompanying right for the investor, after a specified period of time, to institute foreclosure proceedings (a tax lien sale).

 

Federal tax lien in the United States

In the United States, the Federal tax lien may arise in connection with any kind of Federal tax, including but not limited to income tax, gift tax, or estate tax.

 

 Federal tax lien basics

Internal Revenue Code section 6321 provides:

Sec. 6321. LIEN FOR TAXES.
If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belong to such person.[1]

The term “assessment” refers to the statutory assessment made by the Internal Revenue Service (IRS) under 26 U.S.C. § 6201 (that is, the formal recording of the tax in the official books and records of the U.S. Department of the Treasury). Generally, the “person liable to pay any tax” described in section 6321 must pay the tax within ten days of the written notice and demand.[2] If the taxpayer fails to pay the tax within the ten day period, the tax lien arises automatically (i.e., by operation of law), and is effective retroactively to (i.e., arises at) the date of the assessment, even though the ten day period necessarily expires after the assessment date. Internal Revenue Code section 6322 provides:

Sec. 6322. PERIOD OF LIEN.
Unless another date is specifically fixed by law, the lien imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed (or a judgment against the taxpayer arising out of such liability) is satisfied or becomes unenforceable by reason of lapse of time.[3]

Under the doctrine of Glass City Bank v. United States[4], the tax lien applies not only to property and rights to property owned by the taxpayer at the time of the assessment, but also to after-acquired property (i.e., to any property owned by the taxpayer during the life of the lien).

The statute of limitations under which a Federal tax lien may become “unenforceable by reason of lapse of time” is found at 26 U.S.C. § 6502. For taxes assessed on or after November 6, 1990, the lien generally becomes unenforceable ten years after the date of assessment. For taxes assessed on or before November 5, 1990, a prior version of section 6502 provides for a limitations period of six years after the date of assessment. Various exceptions may extend the time periods.

 

Perfection of Federal tax liens against third parties (the Notice of Federal Tax Lien)

A Federal tax lien arising by law as described above is valid against the taxpayer without any further action by the government.

The general rule is that where two or more creditors have competing liens against the same property, the creditor whose lien was perfected at the earlier time takes priority over the creditor whose lien was perfected at a later time (there are exceptions to this rule). Thus, if the government (which is treated as a “creditor” with respect to unpaid taxes) properly files a Notice of Federal Tax Lien (NFTL) before another creditor can perfect its own lien, the tax lien will often take priority over the other lien.

To “perfect” the tax lien (to create a priority right) against persons other than the taxpayer (such as competing creditors), the government generally must file the NFTL[5] in the records of the county or state where the property is located, with the rules varying from state to state. At the time the notice is filed, public notice is deemed to have been given to the third parties (especially the taxpayer’s other creditors, etc.) that the Internal Revenue Service has a claim against all property owned by the taxpayer as of the assessment date (which is generally prior to the date the NFTL is filed), and to all property acquired by the taxpayer after the assessment date. (As noted above, the lien attaches to all of a taxpayer’s property such as homes, land and vehicles and to all of a taxpayer’s rights to property such as promissory notes or accounts receivable.) Although the Federal tax lien is effective against the taxpayer on the assessment date, the priority right against third party creditors arises at a later time: the date the NFTL is filed.

 

Subsequent liens taking priority over previously filed Federal tax liens

In certain cases, the lien of another creditor (or the interest of an owner) may take priority over a Federal tax lien even if the NFTL was filed before the other creditor’s lien was perfected (or before the owner’s interest was acquired). Some examples include the liens of certain purchasers of securities, liens on certain motor vehicles, and the interest held by a retail purchaser of certain personal property.[6]

Federal law also allows a state — if the state legislature so elects by statute — to enjoy a higher priority than the Federal tax lien with respect to certain state tax liens on property where the related tax is based on the value of that property. For example, the lien based on the annual real estate property tax in Texas takes priority over the Federal tax lien, even where an NFTL for the Federal lien was recorded prior to the time the Texas tax lien arose[7], and even though no notice of the Texas tax lien is required to be filed or recorded at all.

 Notice of release of Federal tax lien

In order to have the record of a lien released a taxpayer must obtain a Release of the Notice of Federal Tax Lien.[8] Generally, the IRS will not issue a notice of release of lien until the tax has either been paid in full or the IRS no longer has a legal interest in collecting the tax. The IRS has standardized procedures for lien releases, discharges and subordination. In situations that qualify for the removal of a lien, the IRS will generally remove the lien within 30 days and the taxpayer may receive a copy of the Certificate of Release of Federal Tax Lien.

The difference between a Federal tax lien and an administrative levy

The creation of a tax lien, and the subsequent issuance of a Notice of Federal Tax Lien, should not be confused with the issuance of a Notice of Intent to Levy under 26 U.S.C. § 6331(d), or with the actual act of levy under 26 U.S.C. § 6331(a). The term “levy” in this narrow technical sense denotes an administrative action by the Internal Revenue Service (i.e., without going to court) to seize property to satisfy a tax liability. The levy “includes the power of distraint and seizure by any means.[9] The general rule is that no court permission is required for the IRS to execute a section 6331 levy.[10].

In other words, the Federal tax lien is the government’s statutory right that encumbers property to secure the ultimate payment of a tax. The Federal tax levy is the actual seizure of that property.

In general, a Notice of Intent to Levy must be issued by the IRS at least thirty days prior to the actual levy. Thus, while a Notice of Federal Tax Lien generally is issued after the tax lien arises, a Notice of Intent to Levy (sometimes misleadingly called simply a “notice of levy”) generally must be issued before the actual levy is made.

Also, while the Federal tax lien applies to all property and rights to property of the taxpayer, the levy is subject to certain restrictions. That is, certain property covered by the lien may be exempt from an administrative levy.[11] (Property covered by the lien that is exempt from administrative levy may, however, be taken by the IRS if the IRS obtains a court judgment.)

A detailed discussion of the administrative levy, and the related Notice, is beyond the scope of this article.

In connection with Federal taxes in the United States, the term “levy” also has a separate, more general sense of “imposed.” That is, when a tax law is enacted by the Congress, the tax is said to be “imposed” or “levied.”

Notes

  1. ^ 26 U.S.C. § 6321.
  2. ^ See 26 C.F.R. section 601.103(a).
  3. ^ See 26 U.S.C. § 6322.
  4. ^ 326 U.S. 265 (1945).
  5. ^ See 26 U.S.C. § 6323.
  6. ^ 26 U.S.C. § 6323(b).
  7. ^ See 26 U.S.C. § 6323(b)(6) and Tex. Tax Code sections 32.04 and 32.05(b).
  8. ^ See 26 U.S.C. § 6325.
  9. ^ See 26 U.S.C. § 7701(a)(21) and 26 U.S.C. § 6331(b) (italics added).
  10. ^ See Brian v. Gugin, 853 F. Supp. 358, 94-1 U.S. Tax Cas. (CCH) paragr. 50,278 (D. Idaho 1994), aff’d, 95-1 U.S. Tax Cas. (CCH) paragr. 50,067 (9th Cir. 1995). The IRS may, however, be required to obtain court permission in the case of bankruptcy; see 11 U.S.C. § 362.
  11. ^ See 26 U.S.C. § 6334.


Tax Liens

How Does A Lien Priority Affect You?

How does Lien Priority affect you?

To explain this as simple as possible, when you buy a home and get a loan for the home, the lender puts a lien on the property. By doing so, the property becomes collateral for the loan. So, in the event the homeowner is unable to make payments, the lender can force the sale of the home to get paid. There can be several liens at one time on a single property?

Lien priority is based on when things get recorded. So let me give you an extreme example to illustrate lien priority.

Here is an example situation with about everything that you could possibly come by. We have a 1st mortgage for $250,000 with $15,000 in arrears. This would include all back payments, late fees, attorney fees and all the other fees they tack on. This was recorded 6-20-1999. We have a 2nd for $60,000 with $5000 in arrears. Again this includes the back payments and fees. This was recorded 7-21-1999. We have two judgments. One for $2000 recorded 3-2-03, and one for $4000 recorded 4-2-03. We have $3000 in state income tax recorded 5-5-04. We have a $6000 IRS tax lien recorded 10-20-04. And finally we have $5000 in property taxes recorded 2-11-05. Believe it or not all of these are different which we will talk about.

If we take a look at this example, we have a 1st mortgage and we can clearly see it was recorded first in 1999. We also have a 2nd who is clearly in 2nd position. Then we have a couple of judgments. The judgment for $2000 is in 3rd position because it was recorded before the $4000 judgment. So the $4000 judgment is in 4th position. Then we have state income tax for $3000 which is in 5th position.

Here is a simple version.

    1st Mortgage -$250,000 recorded 6-20-1999
    -arrears $15,000
    2nd Mortgage – $60,000 recorded 7-21-1999
    -arrears $5000
    Judgment 1 – $2000 recorded 3-2-2003
    Judgment 2 – $4000 recorded 4-2-2003
    State Income Tax $3000 recorded 5-5-2004
    IRS Tax Lien – $6000 recorded 10-20-2004
    Property Taxes – $5000 recorded 2-11-2005

Are you starting to see the pattern? It’s all based upon when you record. Whoever records before another would be in "Senior" position and the other would be "Junior". Hence the terms senior or junior lien holders.

Now we get down to the last 2. These last two have rules which we need to discuss. If we look at when these were recorded, the good ole IRS tax lien would be in 6th position. Now even though the IRS is in 6th position, they have what’s called redemption rights. So here is the rule for IRS. It doesn’t matter what position they are in, they could be in last position. If there is still equity in the property, they have 120 days to redeem the property. Why would they want to redeem the property? If there is a great deal of equity in the property and they know it, they can use that money to satisfy any tax liens. It is very rare the IRS does this, but is can happen.

Then we finally get down to the state property taxes. All of you need to remember this. This is very important. Here is the rule for property taxes. State property taxes have priority over EVERYTHING. It does not matter when it was recorded. If you look at this example, there is $5000 of unpaid property taxes that was recorded after everything else. It was recorded 6 years after the first mortgage. Guess what? It does not matter. Property taxes always get paid first.

So if we take a look at this example from what we just discussed, and the first is foreclosing – what is the opening bid at the auction? $250,000 + $15,000 + $5000(property taxes) = $270,000. All the other junior lien holders are wiped out if they don’t protect their position except for… the IRS tax lien. Remember, they have their redemption period. Now here is something else you need to understand. Even though everyone was wiped out, the junior lien holders can still go after the borrower. This is called a deficiency judgment. Again this does not happen very often but it does happen. A deficiency judgment is an unsecured debt and does not attach to any property. Then depending on your states laws they can collect this debt.

If the 2nd is foreclosing – what is the opening bid? $60,000 + $5,000(arrears) = $65,000 and you are responsible for anyone senior, in this case the 1st of $270,000 for a grand total of $335,000. And everyone junior to the 2nd lien holder is wiped out except for IRS. See why it’s so important to know who is foreclosing?

Probate

Purchasing Property From a Decedent’s Estate

2 Comments

Purchasing Property From a Decedent's Estate Frequently, the property of a decedent is sold rather than distributed to the heirs. There is sometimes a need to raise cash or pay taxes, or, more often, property will be sold so that the sales proceeds can be split among several heirs. In any event, estate sellers are often very motivated to sell, and motivated sellers can mean bargains to careful buyers.

There may be unique procedures that must be followed when an estate sells real property. These procedures depend on how the decedent's estate is being handled. There are three common alternatives:

1. The property is held in trust.

2. There is (or will be) a probate proceeding.

3. The estate is subject to the Independent Administration of Estates Act. Trust Property You can usually determine whether a property is held in trust by determining who the record owner is. If title is held by a trustee, the property is held in trust. For example, if title was vested in "John Smith and Jane Smith, Trustees of the Smith Family Trust," the property would be trust property.

On a person's death, trust property passes according to the terms of the trust and a probate proceeding is not required. If the decedent was named as the trustee, the successor trustee will be the person identified in the trust agreement as the successor (or appointed by the court if there is no named successor able to serve). The trust agreement is a private document and is not required to be filed in any public record either before or after a person's death. It may be difficult to ascertain who the successor trustee is.

A letter addressed to the property (assuming it is residential property) will usually be forwarded to the successor who is in the process of winding up the decedent's affairs. Although a trustee's power may be restricted by the trust agreement, a trustee will usually have the power to sell trust property as if the property was not held in trust. No court approval of the sale is required, although a trustee may seek court approval to protect against later claims by a beneficiary of the trust. The subject of court approval, if desired, should be addressed in the real estate purchase agreement.

Occasionally, you may encounter a property that the seller claims as trust property, but does not stand of record in the name of the trustee. In setting up estate planning trusts, people often fail to fund the trust by actually transferring property to the trust. So, while people may intend property to be in trust, they fail to take the critical step of actually deeding the property into the trust. These properties are not trust properties and they cannot be transferred by the trustee. If you take a deed from the trustee, you will not be able to secure title insurance, and in fact risk losing the property if there is an heir entitled to inherit the property. In these situations, check with the title company to be sure title insurance will be available, and, if not, what they will require to insure title. There is a summary procedure for property worth $20,000 or less.

The only other alternative will be a probate proceeding. Probate Proceedings The representative of an estate has the power to sell any asset of the estate by either a private sale or public auction. Real estate is almost always sold at a private sale where independent bids are solicited by the representative prior to any sale. The key feature of a probate sale is that, unless the personal representative has authority under the Independent Administration of Estates Act, all real property sales must be returned to the court for confirmation. Until the sale is confirmed, neither the personal representative nor the buyer can enforce the sale. However, a written bid cannot be withdrawn once it has been accepted by the personal representative subject to court confirmation.

At the time of the confirmation hearing, other prospective buyers may make offers to purchase the property that exceed the offer being returned for confirmation. Where a higher bid is made at the confirmation hearing, the court is not required to confirm the sale to the higher bidder. If a written offer is made by a responsible person in the minimum amount required in excess of the offer being returned, the court must accept the highest offer if it is to accept any offer, but the court has the discretion to reject the highest offer and order a new sale.

When comparing bids, the court cannot consider the net amount to be received by the estate. The amount of the bids must be considered without reference to any commission owed by the personal representative and without reference to any condition of an offer that a commission be paid by the personal representative. Estate property may be sold for cash or credit. Where this is a credit sale of real property, the unpaid balance must be secured by a mortgage or deed of trust on the property. There is no statutory requirement that the security be a first deed of trust; it may be subject to existing liens and such other liens as are approved by the court.

There is no requirement in the Probate Code that there be any minimum down payment. Court rules in some counties may require a minimum deposit. The prospective buyer should check the local court rules to determine whether there are any local requirements applicable to sales. For example, some court rules provide that a sale will not usually be confirmed where the buyer assumes or takes subject to existing financing if the estate is subject to contingent liability.

Finally, one of the mandatory findings that a court must make before a private sale can be confirmed is that the price is at least 90% of the appraised value of the property. The valuation date of the appraisal must be within one year preceding the confirmation hearing. Probate properties must be appraised by probate referees. While the referees are generally knowledgeable, their appraisals are usually less rigorous than that of fee appraisers. If the appraised value is set too high, a supplementary appraisal can often be obtained using as evidence the arm's length offer from a third party. Independent Administration of Estates

Most California probates are now administered under the Independent Administration of Estates Act. When the procedures of this act are followed, many of the procedures for court confirmation and overbidding can be avoided. When the personal representative has full authority under the act, the property may be sold at public or private sale, and the procedures related to court confirmation, including a sale at not less than 90% of the appraised value do not apply. The personal representative must give notice of the proposed sale to persons interested in the estate. The notice must set forth the material terms of the transaction, including the sales price and the amount of any commissions. If any person objects to the proposed sale, the representative cannot make the sale without the prior approval of the court. The failure of the representative to give the required notice will not affect the validity of the title in the hands of a bona fide purchaser of the property who relied in good faith on the representative's authority. The buyer has no duty to investigate whether the representative has given the notice in the proper manner. The representative's authority to act under the Independent Administration of Estates Act can be confirmed in the representative's letters of administration (the representative's authorization from the court) or from the court's file.

Dealing with property owned by a trust or probate estate may present opportunities for the real estate investor. There are, however, additional procedures that the investor should understand. Failure to follow the correct procedures may lead to title problems that can significantly affect the value of the property. The foregoing has been prepared for informational purposes only and does not constitute legal advice. The information is summary in nature and does not address any particular situation. Readers should not act upon this information, but should instead seek professional advice.

 

Tax Liens

How To Prepare For Your First Tax Lien Sale

To be a successful bidder at a tax lien sale, you must be prepared. It’s a good idea to attend a couple of sales before you actually start bidding on properties. In this way you can become familiar with the bidding procedure, which is different in each state. New people are always amazed at what actually happens at a tax sale. It’s not what they expect. They expect to bid a healthy interest rate on a lien and are totally taken by surprise when the bidding goes down to zero and then up to very high premium.

There are a few things that you need to know before you bid at a tax sale. First of all you need to pay in full with cash or certified check for anything that you are the successful bidder on. Some municipalities will accept attorney’s checks and/or money wires but most tax collectors will only accept cash, or certified funds payable to the municipality.

Some tax collectors will allow you time to go to the bank after the sale to get a certified check, but some will not. You will need to know ahead of time if you will have to pay immediately after the sale or if you will be given time to go to the bank. If you won’t be able to go to the bank after the sale, you will need to have the required funds with you. Do not wait until the day of the sale to learn what forms of payment are accepted, or you could loose a successful bid.

Get in touch with the tax collector a few days before the sale to verify the time and place of the sale, find out what forms of payment are accepted, and whether or not you need to register ahead of time. Keep in mind that in most cases, half of the properties that are on the original list for the sale will be paid off and no longer available. You don’t want to waist your time doing due diligence on all of the properties on the original list. The tax collector should be able to give you an updated list with the current properties in the sale. In many cases the tax collector will fax you the list. A few municipalities will have their lists on their website. For very large municipalities you may have to go pick the list up at the tax collector’s office. Once you have an updated list, you’ll need a day or so to do due diligence on the properties. Even though you are not buying the property, you want to make sure that you’re not getting a lien on a worthless property.

If you are successful bidder on any of the properties, you will be required to give the tax collector a Tax Sale Bidder Information Sheet. Some tax collectors will require that you hand in the form before the sale, when you register. It has to be filled out with your name address and social security number, or federal ID number if you’re bidding under a company name. It may also have a required notice and disclaimer that you have to sign. Usually there’s room to fill in the lot and block numbers of the properties that you win, along with the % bid (0 if you paid premium), premium, if any, and the amount of sale (this is the amount of the lien and could be different than the total amount paid if you paid premium). Some municipalities also require you to fill out a W-9 form so be prepared with your business information if you’re bidding under a company name, or with your social security number if your bidding under your own name.

On the day of the sale, arrive early so that you can check on last minute updates (people are always paying their taxes last minute, rite before the sale), open taxes, and zoning if you need to. I like to arrive an hour before the sale begins. You’ll need to have the Bidding Form, certified checks, and the Bidder Information Sheet. Make sure that you’re seated and ready a few minutes before the sale begins. Turn off your cell phone, once things start everything happens very quickly, and any distraction can cost you.

After the sale you will have to pay for any liens that you purchased. If the tax collector doesn’t have change, they will send you a check for the difference, but you may have to wait until the next board meeting before you get it. Keep your receipts and a copy of the bidder information sheet. In some cases the tax collector will issue a certificate immediately, but in most cases you will have to wait up to 10 days and the certificate will be mailed to you.

On the following pages is the check list that I provide to all of my bidders to help them prepare for a tax lien sale. Please realize that each state again has its own requirements.

Check list for preparing for a tax lien sale

One week before the sale;

  • Call the tax collector and verify the following information:

?Date, time and place of the sale.

Tax collector’s contact information
(name, address,phone, fax, and office hours).

  • ??Which year’s taxes are being sold (previous year or current year)?
  • ??Start of the municipality’s year. Are they on a calendar or fiscal year?
  • ??What forms of payment are accepted? Do they take wire transfers? If they do, what needs to be set up ahead of time?
  • ??Does the municipality have a year end penalty?
  • ??Do you need to register for the sale ahead of time?
  • ??How can you obtain an updated list for the sale? Will they fax you a list or will you need to pick it up?

Three days before the sale;

Get the updated list from the tax collector and do your due diligence. For specifics on how to do due diligence consult the special report on my web site “Step by Step Guide: How to do Due Diligence for Tax Lien Sales”. Check the

Following:

  1. ??Are there prior liens on any of the properties in the sale?
  2. ??Are there open taxes on any of the sewer or utility liens?
  3. ??Check zoning on any vacant land in the sale.
  4. ??If you are not familiar with the municipality, look at the tax map in  the tax collector’s or tax assessor’s office to find where the properties are located
    ?It’s a good idea to have your own map for street references.

One daBefore the sale;

  • Based on your due diligence, decide which properties you will bid on, and what the maximum premium that you are willing to pay is on each of the properties. Be sure to:
  • ??Register for the sale if prior registration is required.
  • ??Go to the bank and get the certified funds and/or cash that you will need. (Unless you’re using wire transfers or will be given time to go to the bank after the sale).

The day of the sale;

  • Get to the sale an hour early, and have the following with you:
  1. Necessary means of payment.
  2. ??Necessary forms – Bidder Information Sheet and W-9 form.
  3. ??Your own bid sheet showing all the properties in the sale, with the properties that you are bidding on highlighted with premium numbers.