EP NC 11 – Texas Tax Liens with Arnie Abramson

NC 11 | Tax Liens

There are states that are called tax lien state because they only offer liens for sale at the tax auctions. Texas is one of those states, and in their auctions, bidding starts with the amount owed for the tax liens. If an investor buys the property at the minimum bid, it catches up on back taxes for ownership and rights of possession and then is sold to the highest bidder, including the right to own and possess. Arnie Abramson explains that this allows investors like him to purchase tax sale properties below market value.

Listen to the podcast here:

Texas Tax Liens with Arnie Abramson

One of the great things about Note CAMP 5.0 is we have a great mix of new blood, new speakers. One of the great things we love to do is always answer the questions of people at the previous Note CAMPs of subjects that they like to see discussed. We’re excited to have the king of Texas tax lien investing. Joining us here is Arnie Abramson, an avid golfer, also an avid investor. I’ve known him for years. He is just a great wealth of knowledge. We’re excited to have Arnie with us.

Thank you.

I’m glad to have you here.

I want to talk about Texas tax sales made easier and I want you to know all about Texas tax sales. Then, we’re going to talk about how to make it easier. Let’s start off with this. You’re now going to get it from the horse’s mouth. I know people have said that in the past, but I want to prove it to you because that’s where I got it. Here’s my proof. I’ve been with this for over a hundred years. I started buying Texas tax sales in 1992. I’m going to tell you this, so you won’t think I started it last week. I was the first President of Texas REO. That was a statewide organization that formed several years ago to fight some of the legislation coming out of Austin about the real estate industry. I co-founded the REI Expo that we sold and now called Think Realty. I founded this company, the Texas Tax Sales Resource Group. I am a National Speaker on Texas Tax Sales. I used to say, “I go over this rate board because that makes me out of State.” I am going to California. It’s getting me around. I was quoted in US News & World Report. I couldn’t wait to go to the newsstand and find out what it looked like. Then I found out US News & World Report doesn’t publish it anymore. It’s all electronic. I have to have a link involved.

Let’s get started with the basics so we can then determine what needs to be made easier because this is not the tax sales we all know about. It is very complicated and I love questions, but there are no short answers. Let’s talk about a tax. A tax is a compulsory monetary contribution imposed by a government to pay for government activities. Sales tax, income tax, and property taxes. Those we are familiar with. A property tax is assessed according to the value of the property owned by the taxpayers. It’s a value-added type of tax. These taxes are called ad valorem taxes. That’s Latin for, “According to value.” An ad valorem tax is another name for property tax in Texas. It’s paid by the owners of real estate and it’s paid to the taxing entities or taxing units. They are primarily in the county, the city, and school district. There could be others in your particular area. It could be a hospital or a college, water district or in my district, the municipal utility district, but the three main ones are the county, the city, and school district. Those are the taxing entities that bring forth the tax sales.

NC 11 | Tax Liens

Tax Liens: You don’t want to buy a property at a tax sale thinking that it pays off all the taxes and you find out there’s another entity that was not included.

They are the plaintiff. They are doing the suing for the property and they could include the taxes of all the entities or they could not include all of the entities and just their own. That’s part of the research that has to be done because you don’t want to buy a property at a tax sale thinking that it pays off all the taxes and you find out there’s another entity that was not included. That’s why I’m telling you about these so you’ll know what to look at. Why are there property taxes anyway? It’s the main source of income for local governments such as fire and police schools, libraries, street maintenance, parks, water, utility systems. These are essential. We don’t want to not have the police and fire and libraries and schools. The problem is that there are millions and millions of dollars in unpaid taxes. If they have the shortage of revenue, these taxing entities, they have to cover their loss and they have two choices. Number one choice is to raise taxes. That’s certainly not the one we want. Their alternative is sell the properties to get the money and that’s how the tax sales come about. You might say it’s our civic duty to buy the properties at the tax sale, so we don’t have to raise taxes. I want you all buying properties. The goal of the delinquent tax sale process is to collect these delinquent property taxes and to put reliable taxpayers on the road. That’s us, the investors. That allows us as investors to purchase the tax sale properties below market value.

Let’s talk about that whole process of the tax sale process so you can understand where it comes from and how it works. Let’s say we have an owner who does not pay his property taxes. There are attempts made to collect. The attempts are usually done by a law firm representing the taxing entities, but it could be the appraisal district itself. They are going to send out notices and say you’d have to pay your taxes over and over and they have to keep gunning people and eventually, penalties will start to accrue so what they owe gets to be bigger and bigger. Finally, they’ll get a warning that they are going to file a lawsuit if they don’t pay their taxes. They don’t pay the taxes and a lawsuit is filed. What happens next? A judgment is rendered. That’s important to know because the judicial action that’s different from a mortgage company that forecloses because they can do it as soon as you’re late on your payments, but you can’t foreclose for taxes until you get this judicial action, until you get a judge that will render that. That’s why trustee sales can be sooner than a tax sale. That’s one of the reasons people ask me all the time is what’s the difference between those two? That’s the primary difference. They also ask why if a tax sale to the properties have mortgages on. Generally, they do not because if property does have a mortgage, the mortgage company can foreclose a lot sooner than for taxes because if we stay, they’ve got to go get a judge to render a decision.

Once these taxes are delinquent and that judgment has been rendered, a sale date is scheduled. Once they scheduled this sale date, there’s a notification that all parties with an interest in the property must be notified and given an opportunity to pay. If they’re not properly notified, they have the right to contest the sale and if they prevail, they can undo the sale. That right is for two years now. It’s rarely attempted but the title company seems to hang their hat on this possibility that they could do that and it’s difficult to get a title policy for that in two-year period and some of them in four to five years. Understand that there are safeguards built into this so that someone can’t frivolously call and say, “I wasn’t notified,” because the response would be, “Bring your money down to the appraisal district that you would have paid had you been notified.” They usually get a hang up if it’s a frivolous client. It’s rarely done. In 25 years of doing this, I’ve only had one attempt of someone to call me and say, “My client wasn’t notified.” It turned out not only was his notified, he was the one who responded.

What is a tax sale exactly? When a property owner does not pay, his rights are held by the taxing entities. The county, the city, and the school district can be sold at the tax foreclosure auctions. These rights could be the right to the debt owed by the taxpayer and that’s called a tax lien or it could be the right to own or possess the property and that’s a tax deed. Those two things are different. Tax liens are like owning a bond and the tax deeds are like owning a stock. If you buy a tax lien, what you’re going to get is the interest on what is owed unless they don’t pay it and then you have to foreclose. A tax deed, you get the ownership of the property. Every state is different. The rules are different, the laws are different, the methods are different, the number of sales they have every year is different, and how they are sold is different.

Some of these states are what we call tax lien states. They only have liens for sale at the tax auctions. Some of them are tax deed states. There are some that are combination auctions. Texas is a redeemable tax deed state. That’s very significant there. Out of all the states that are tax deed states, only about six or seven are tax deed states and only two are redeemable tax deed. Six of them are redeemable tax deed states, but four of those six just pay interest if they redeem and two of them, Texas and Georgia are the ones that have penalty fees. In Texas, the bidding starts with the amount owed for taxes. That’s the tax lien amount. If anyone buys that at the minimum bid, then it catches up those back taxes. Full ownership and rights of possession are sold to the highest bidder, including the right to own and possess the property. That’s Texas.

Let’s talk about the auctions in Texas. The auctions are held on the first Tuesday of the month. If they’re going to have a sale, it’s going to be on the first Tuesday of the month. This last July, July 4th was the first Tuesday so there was no sale. A couple of years ago, January 1st. There was no sale that month because it was a National Holiday. Our legislature this year passed a law that says on January 1st or 4th of July, if those fall on the first Tuesday, they have the right to go to the next day. We’ll see if they do. They finally passed that law. Some of the larger companies have sales every month. Some of them don’t. The five big cities in Texas, Dallas, Fort Worth, Austin, Houston, and San Antonio, will have a sale every month. Some of the secondary cities, like Abilene, have a sale every three months. It varies. In any given month, there’ll be 50 to 80 counties that have a sale. Some of the counties require prior registration and proof that you don’t owe taxes, but some of the smaller ones do not have them. Some are starting to adopt those.

 NC 11 | Tax Liens

Tax Liens: Full ownership and rights of possession are sold to the highest bidder.

That was a relatively recent law that came about. They don’t want to sell anybody property in this county that they owe taxes to. Some of the counties require that you register and get this clearance five days before the sale and one of them, ten days before the sale. Every county is different in a lot of different ways. It is an oral auction and the payment is required the same day. In some counties, it’s immediate. Most notable, Dallas and Houston areas, that’s Harris County and Dallas County. They can’t stop the auction until you pay. Most of the other counties, all of them will give you an hour or two hours or three hours to go to the bank and get a cashier’s check and bring it back. Cashier’s checks are always acceptable. Every county has their own rules about their form of payment. Some of them will accept personal check if you bring them a cashier’s check the next day. Some will take money order, some will not. Some will take cash, some will not. They will all take cashier’s checks though.

Usually, there are post-judgment taxes that you have to pay in addition to what you buy the property at. That’s because they have that judgment that had happened before they go on the tax sale. That judgment was only through the previous tax year. From that point on, they had to go notify everyone that had an interest in that property. Sometimes that could take years if they have to look for heirs. All that time since that judgment was rendered, their tax is accruing and whoever buys it at the tax sale inherits those taxes. That’s part of the research that must be done before you make a bid because you want to know in addition to whatever you buy that property for, you’re also going to have to pay post judgment taxes. If no one bids on the property for sale, it’s struck off. That’s also called a resale, over-the-counter interest. It’s various different names in different counties. That means that you can go in after the sale and buy it for the minimum bid that was offered, but every county handles this differently.

For example, in Taylor County, that’s Abilene, they only have a sale every three months and they say, “If no one bids on our property, we will not show it to you between now and the next sale in three months.” What we’ll do is we’ll have another auction after our regular auction three months from now and we will lower the price. We keep doing that every 90 days until the property is gone and someone has it. That’s a good way to handle it. Unfortunately, most of the counties do not handle it that way.

Here’s a quick example of a typical tax sale using easy to use members. Let’s suppose that we have $100,000 value on a property. We’ve researched the taxable value at the County Appraisal District. That’s not necessarily the market. That’s the value that it is assessed after taxes. At some point, it was deemed to be the market value. Let’s suppose they owe $8,000 in delinquent taxes. That’s passed through taxes and everything else and now they’re facing foreclosure. The opening bid at the auction would be that $8,000. If anyone buys it at the opening bid, it will pay off that $8,000 delinquency. Let’s suppose that we bought that property for $50,000, 50% of the appraisal district value and sold to the highest bidder. You think that would be a good deal? Probably. What if you paid $75,000? Would that still be a good deal? We’re not sure.

What determines a good deal? Cashflow is what determines a good deal on a tax sale. Most of the title companies require at least two years after the sale to get title insurance. During that period of time, most buyers and lenders are going to require title insurance. That means that you may have to hold it for two years. If you have to hold it for two years, you want to make sure you don’t have to pay taxes and insurance and any of those. We want net money coming in. You’ll want to rent it to cover all those expenses and also hopefully, to give you a pretty good cashflow. That’s why we look at cashflow. Are rents good or bad? We know the price in Texas has gone up crazy. What about rents? Single family rentals have gone up 30% in the last three years. To the day, single-family rental homes and town homes make up 35% of the country’s 44 million rental units compared to 31% twelve years ago. Who are these renters? The millennials are leading the way to single family rentals and the Americans over 55 had also grown more interested in renting. In fact, the number of renters aged over 55 has grown 28% in six-year period. That’s significant. In some cities, more than two-thirds of a new single-family rentals are over 65. One of those cities is Houston. It’s not just in the big cities like Texas. In fact, the small town growth may turn out to be more phenomenal than the big cities and that’s a quote right from the Real Estate Center Online News, the Texas A&M and we are finding that to be true.

What’s so special about Texas anyway? The real estate fundamentals are so good here. We have a booming economy. There’s no state income tax that’s very important to investors coming from California. We are becoming a brand. In California, if you want to build property, you’ve got to flatten the mountain, in Texas, you go up the road. We have a high population growth. Last time I looked, we have 1,200 new people coming in every day and those are the ones that we know about. Incredible employment numbers. In 2014 to 2016, Texas created more non-governmental jobs than the rest of the country put together. The cost of living, the quality of life is great here if you stay off the freeways of course. The reality compared to the rest of the country, we’ve got a good way of life. All of this plus we have the best structure for tax sales of all the states.

Number one, we can buy at discounts. We all know that the real estate market, the last few years has been so bad, it’s difficult to buy at discounts compared to what we bid before and that’s true. We still have discounts and Texas has so many properties that is so big, you just have to find them. It’s a little tougher to find them. After all, we’re in the tenth year of a seven-year cycle. We have monthly taxes. Not all states do. Some states who have a one tax sale of the year. We have them every month and we have 254 counties more than any other State. Any county can have their own sale they can do it every month. The reality is we’ll probably never have a month for 234 sales, but in any given month, we’ll have between 50 and 80 counties at any sale. Tax lien priority. It means that if you buy property at the tax sale, it wipes out all non-governmental liens including mortgages. That’s the priority.

Immediate possession, that’s important. I said earlier that Texas and Georgia have two types of tax liens that we all deal with. The charges are a little different. If we buy a property in Georgia, you get your ownership right away. You get title but you don’t officially get the ownership for one year. You cannot go to the house, you cannot collect rent, you cannot make improvements for that one year. In Texas, it’s immediate. You can’t physically take possession and move someone out in Texas for twenty days after the sale, but you’ll have immediate possession and ownership. You get immediate rent entitlement also. If you buy it at the sale, you’re entitled for the rent for that month. We have five major metropolitan areas that are going to have a sale every month. It’s not just those five either. In Houston, in Harris County for example, there are eight different precincts and each precinct has their own sale at the same time, at the same places like eight different counties. In Dallas County, you’ve got Tarrant right next to it. You’ve got Collin, you’ve got Johnson, you’ve got Ellis. You’ve got all these surrounding counties also. The same thing is true in San Antonio and Austin. We have a lot of opportunities. We also have the highest redemption paid.

NC 11 | Tax Liens

Tax Liens: If no one bids on the property for sale, it’s struck off.

When we talk about redemption, that’s the most misunderstood thing about tax sales in Texas. Number one, you have to understand, if someone loses their house at the tax sale and sold to someone else, the old owner and anyone who has an interest, an equitable interest in that property including mortgage claims, have the right to redeem it or buy it back. If they do, they must pay you what you paid for it plus 25%. If it’s in the first year, 50%, if it’s in the second year, and that is not prorated. That means if you buy now and then within two weeks from now, they have to pay you the full 25%. If it’s one year and one day, the full 50%. How long did they have that right? They have it for 180 days. Unless it is a homestead or they have an agricultural exemption or it’s just a mineral right by itself, then it’s two years. The homestead thing is not just whether or not they’d have a homestead exemption. They have to verify that they were living in that property when the suit was filed as their primary residence in order to have the two years. The 25% is the highest in the country. Georgia, it’s 20% but they already have a problem not being able to access the property for a year. Let’s say we buy a property at the tax sale and we base it on the rent. That means we have a cashflow. Worst-case scenario, you have a good cashflow but if they should redeem it, that’s too bad. I only got the 25% or 50% return in how many months? That’s a homerun or a touchdown. Why doesn’t everybody do it if it’s so great? It’s a lot of work. That’s why we have the tax sale service to provide services to investors to help them in buying properties in the tax sale. I’ve been doing it since ‘92 before most of you were born probably.

Here are some examples of how we can make it easier for you. We have a product we call the Dynamic County Spreadsheet. It’s dynamic because once we give you the link to this, it’s updated every day because it changes every day. We have new counties that come on and you have the link to it and we’ll record those changes. It shows you, for example, the counties that were having a sale in the next month. This is just an example. it shows you the county city. That’s where the sale is and whether the auction will be online or if you have to attend and what time sale is in. In Waco, for example, it’s at 2:00 and then how many properties do they have for sale this next month. That’s good information. That allows you to say, “I’m interested in this county or that county or the county I’m interested in is not having a sale this month. Then you can go to our county property list. “I want this county.” Let’s say it’s Tarrant County and here’s the list of all the properties that are for sale that month and the minimum bid and what’s called the adjudged value.

The judge value is what the appraisal district tax them on. That is when that suit was filed. Not necessarily this year, but when the suit was filed. For example, the last one here, $6,743 they go in taxes and when that was assessed, the property had a value of about $70,000. This will allow you to look and see if you’ve got a narrow gap between the minimum bid and the value. You probably don’t want to overbid a properly because you want to be able to buy it as close to the minimum bid as possible. Certainly, as far away from the value as possible. If they’re too close, you may not want to look at it, but you may find some that are good and then you’ll want more data of that. You can do that on your own or you can order our property data sheet. It gives you some interesting information.

It gives you exactly what we had, the street address, the minimum bid, the adjudged value, but we also give you the current value so you can see if it’s moved up or down and the hash value in the last few years, the cost number. That’s the case number. In some counties, at the auction, they don’t call out the address. They call out what the case number is. Then the judgment date. That tells you, “Look at that first one, 2011.” That could mean that that minimum bid is only through 2011. If you buy the property, you don’t have to pay the taxes in addition to what you’re paying for in 2012, ‘13, ‘14, ‘15, ’16, and ’17. It may not mean that, but that’s part of the research you’ve got to do. Also, the square footage, that’s important to know and does it have a homestead exemption or not? What type of property? Is it residential? Is it commercial? How many bedrooms? How many baths? Garage? What the current taxes are, which helps you with figuring what the cashflow is and then how much land is. This is all information that we have already gathered and have available for you as investors. We’ve got to see what the property looks like. We could go out and Google if you want but sometimes it’s the house around the corner that’s three years old. We have a current picture that we want you to see on the house. We want to make sure to look at the house number. This is Texas. Not all of them have a have a house number. You might have 1410 on the left and 1414 on the right. It doesn’t necessarily mean the one in the middle is 1412.

It’s important that not only when we send people out to take pictures, let’s make sure it’s got the proper house number. Let’s also make sure we know what the neighborhood looks like. Is it coming up? How many foreclosures are there? We’d get a report on that. If possible, we’ll talk to the neighbors or find the neighborhood gossip who could tell us everything about their neighborhood and about that house. Then we want the lien scanned because remember I said that when you buy it at the tax sale, it wipes out all non-governmental liens. We have to find out if there are any governmental liens on there. Now, you can go to the title company. They’ll do it for free because you give them a lot of business. If not, they may charge you a lot of money. We do a scan. Were there any federal tax liens? No liens by any government agency, no homeowner’s association liens, and no IRS liens. That’s what we want to know. Then we’re ready to go to the auction. One day, probably not all of them, will be online, but only one of them is online right now and all the rest or attendance required. Some of them are pretty crowded. Harris County’s tough. It does get crowded because many times not only is the tax sale going on, but also the trustee sales of the mortgage companies are closing all at the same place in many of the counties and at the same time. How do you even know which one to go to? I tell our people, you go to the one with the badge and the gun because that’s the Sheriff or the Constable and that’s the tax sale. The others are more dangerous. They’re lawyers after all.

Then we have the transition. The transition is if we win the bid and then we go knock on the door of the property and say, “I just bought your property at the tax sale.” That’s an interesting transition to make. Only once in my 25 years of doing this, if I ever run into a situation where I knocked on the door, they open the door and I said, “We just bought your property at the tax sale,” and they said, “Come in. We’ve been expecting.” Most of the time it’s, “My husband told me he made that payment. I don’t understand.” There is a lot to do once you do that. We want to assess the people there. Do we want to keep them? Are they the owner or they renter? Do we want them to stay? Do want to evict? What kind of condition is the property? A lot of things we want to know and that’s important. There are a lot of things that need to be done.

NC 11 | Tax Liens

Tax Liens: It’s important that not only when we send people out to take pictures, let’s make sure it’s got the proper house number.

I would like to invite you to not only use our services to make it easier to have these discounted properties, the tax sales, but all the extras that go with it like the redemption possibilities, wiping out the non-governmental liens, immediate possession, and rent entitlement, and also the opportunity to join us. We have three choices and they’re not mutually exclusive. It could be on our mailing list for events. You can order our services that you may want, any part of this that you don’t want to do or become a priority member. The mailing list is for events. You go to our website, scroll down, click where it says Meetups/Mailing List, and that puts you on our mailing list. It’s a Meetup list but we don’t send you hundreds of email and spam. We’re only going to send you an email to notify you when there’s an event that we’re going to participate like a class or seminar, tradeshows, a boot camp or any Meetups so that if you happen to be wherever we are, and you’d like to attend, we’d like to meet you.

You can order any of our services. Go to our website, scroll down and click on Tax Sale Services. That will run through all those services I just talked about and it will give you the pricing involved. Are you going to become a priority number? The priority members just email me if you have any interest and you want to know more about it, but they get the choice of all the deals we find. They have unlimited communication with me and our staff. No fees on many of those services that we talked about. The ones do have fees have big discounts on and no charge for any of our classes and we have financing. Remember, that you can’t get a title policy for two years. It’s difficult to get normal financing for tax sale properties. We have some. It’s taken us awhile but we have some private lenders that will give some financing for our priority members only. That’s a big deal. We have management opportunities for expanding or growing. We’re looking for investors that want to help us out and it’s not a full-time position. It could be very lucrative for everybody. It’s a one-time enrollment fee of $2,500. That’s no annual fees. That’s it. I’d like to thank you for your participation. I’m ready for your questions.

Arnie, I have a question for you. With the market changing and when Texas is basically doing tax sales one time a month, first Tuesday of the month, are you seeing the numbers drop as much as we’ve seen the foreclosures? Are you still seeing quite a few deals they put on the county that’s in?

There are a lot of properties, but they’re being bid up quite a bit. That’s the real elephant in the room is the competition. In fact, I had a whole section on that. There no short answers. Our competition is the big institutions that are coming in. The hedge funds, the private equity funds. The people now have discovered there are great ways to self-directed IRAs and the money launderers. If you’ve got dirty money and you go to a bank, if it’s over $10,000, they want to ask you where did you get it? You have to prove it. If you give $50,000 in cash to the Sheriff, he doesn’t any question when he hands you that bid. can you keep it two years and sell it? That’s clean as the whistle. That’s a big problem in Texas, Florida and California. I would not be surprised to see one day no cash accepted with the tax sales. That’s already true in a couple of counties. That’s the competition.

The competition, these big institutional educated investors, for the most part, they’re going to the big cities because that’s where everything is together. There are more houses that they want. The last crisis we have, they weren’t securitizing all those properties they bought. They’re buying the properties and renting them up and securitizing the rents. We’re finding a lot of satisfaction and a lot more in the smaller counties because they’re just not going there as much because the economies of scale. There are in the big properties. A few years ago, before all this started going crazy, we were averaging. Our company was buying 20% to 25% of all the properties sold in Dallas County. Last year, we bought two properties in Dallas County. We’re doing them elsewhere. It’s there but we have more to choose from and we are hitting some smaller accounts.

You want to go we’re not everybody’s at. You want to go into those sub-markets. We get a lot of people, “We want to buy notes in Dallas.” I’m like, “Good luck with that.” The banks are taking them back or the hedge funds are coming and over bid them. There are a lot of other markets that we can dive into outside of Dallas, the sub markets.

Let me give you an example. A couple of months ago, I took two of our new priority members to a smaller county outside of the Dallas area. I was shocked when we got there. There were 50 people at the sale standing at the courthouse outside. Usually, there are ten or twelve people and there were four properties we were interested in buying. We bought three of them because we were the big guns there. There were no big institutions. There were other investors but it wasn’t the same. They were pretty good deals. We bought all three of them in the $50s and they have values in the $90s.They now rent it for over $1,000 a month.

That’s a pretty good ROI there. What about commercial tax sales? Do you see that in commercial properties?

You do see commercial properties but not as many. You have to do some research on those for those government liens because they’re in the EPA liens on commercial properties. Those can be devastating. It depends on the type of commercial. I wish I could say, “There are a lot of multi-family properties.” You don’t see those very much. Why would anybody let taxes go on a multi-property? Unless it’s bad and then they don’t want it. We see raw land and we see commercial properties, but mostly, we see residential.

Have you ever seen the IRS try to redeem properties they have liens on after a tax sale?

The IRS is very interesting. While I said we have a six-month to two-year redemption period, the IRS has its own redemption rules. They have 120 days to redeem a property and they only have to pay you 6% and it is prorated. The IRS is not interested in the property. They want cash and they’ll make deals. You can negotiate with them. You want to look and see if that IRS lien on the property is it in person am or in rem? If it’s against the person, it may not include the property. If it’s in rem, it probably does. There are a lot of factors with it. We have bought properties with a IRS lien and worked out deals. Two months ago, there was a $300,000 property and an $800,000 lien with the IRS. We didn’t think we wanted to invest with them. They want the cash.

 NC 11 | Tax Liens

Tax Liens: We’re finding a lot of satisfaction a lot more in the smaller counties because they’re just not going there as much because of the economies of scale.

What about flood/storm damaged houses? Do they sell at a discount? What about the waiting period if the house is not occupied?

If they’re offered at the sale, they have to be offered with the taxes owed. If no one bids on them and they are struck off, that means they’re struck off to the county, to the city, to whichever entity brought the suit. In reality, what that means is that entity or all the taxing entities are buying the property for the taxes owed. Then that starts the clock on the two year period and that redemption period as well. The law says that they can’t lower the price until the redemption period is over. The fine print says, “Unless all the taxing entities agree.” As I mentioned before, they are all different in how they’ll handle it, but my best guess would be that they do that in the case of the spread off properties. I don’t think they are allowed to do it on the others because they’re going to say, “Do your own due diligence.” If it’s damaged, if it’s water flooded, look at it and don’t bid on it.

We have done some things knowing there was a tax sale coming on one of our assets, especially when we bought the first lien and the property was not in good condition. It has other liens that would take longer for us to wipe things out to get a clear title. We’ve used their attorneys to bid up the tax sale to go above what was owed in taxes so that we get overage back being the first lien holder.

Let’s talk about the overages. You may be talking about a trustee sale or wherever it may be, but here’s the thing. There are some of these gurus from out of state that come to Texas and they put on seminars about tax liens. You can’t buy tax liens in Texas. You’re buying the deed. A couple of them came in and held seminars about the excesses and they say, “You find the guy who lost the property.” Let’s say they owed $8,000 in taxes and it sold for $40,000. That means there’s $32,000 in excess funds. Who’s entitled to that? The people who had a claim on the property and are entitled to it. The county has required within 31 days to notify them that they are entitled to that. They’d probably send them out about the 13th day of the month and most of the time they’re gone. It’s also written in many cases, and legally, is that no one understands what they’re saying. If no one claims that for two years, then the county gets it or the taxing entities.

The question is that these gurus that came from out of state, they say, “You call up the people who lost their property and you tell him, “I can show you how to get $32,000 and I’ll split it with you and they only charge a thousand or $2,000 for that course.” Here’s the reality. In Texas, the law says you may not charge more than 25%, not to exceed $1,000. You have to be a lawyer. Don’t pay $2,000 for a course you can’t use in Texas. That’s a tough deal on the excess funds. There’s not much you can do if they get them because you’re way behind them in line. There are some things you can do when you buy the property to use part of it and that’s part of what we talked about when we have our longer sessions and our bootcamps for our priority members. There are some things you can do.

How many months will the county continue to hold the property for tax sale if it’s not purchased? Will they do it over and over again every month to month or they’ll do it just once?

They’ll do it on and on. Some of them had been on there for years. Some of the counties don’t want to lower their prices. Denton County has a great system. At the end of the sale, they’ll say, “We have one-on-one property that we offered at $50,000 last month. Nobody bought it. Anybody want it today for $50,000? No. $45,000? No. $40,000? $35,000? $30,000?” They keep going down and everybody at the sale knows what’s going on. Nobody bids. It gets down to $500 and they start bidding and they have no inventory because they get rid of it. All the counties ought to do that, but they don’t. Everyone’s different and there are bureaucrats everywhere.

You have a case study you’d like to share on a great deal. You talked about couple that you went on an outside county. Do you have another one that you’d like to share with everybody?

Sometimes I’m asked, “What’s the best deal you’ve ever did?” The answer is the one I decided not to bid on because it’s too bad. There are some hurdles. What are the problems involved? The problem is that generally, you can’t go inspect the inside of the property before you’re buying it and that’s a tough deal. That’s why we prefer to buy properties that are occupied rather than vacant. If it’s vacant and I can go in or look in the windows or something, that’s great, I can do that. If it’s occupied, they discourage going and knocking on the door and saying, “Can I look at your property? It’s on the tax sale?” How many times that have to happen before they come to the door with a gun? If I tell people that, “Go ahead and do that. Go knock on the door.” If somebody gets hurt, if I told him, then I’m liable. I’m telling you, “Don’t do it.” That’s why we talk to the neighbors sometimes.

NC 11 | Tax Liens

Tax Liens: Everyone’s different and there are bureaucrats everywhere.

We figured that if it’s occupied, that means there’s copper there and maybe the electrical systems and everything else are working. I’m not saying that all the time because we bought a property once where a guy had a sleeping bag and we’re staying in there and nothing is there. If people are living there, then that’s a good sign. There was a property just North of Commerce, Texas a few years ago and my wife and I drove up to look at it. It was 35 acres. It was a gorgeous house. They fenced it and they had cows. You can see the bass jumping in the water. It was exciting. Five bedrooms, four baths for $300,000 something. I looked at my wife and I said, “If this goes into sale and we buy it, we’re moving.” I live out my way anyway and haven’t got much but they only owed $12,000 in taxes. We said, “It’s not going to go to the sale. They’re not going to get that up for a $300,000 house.” Just in case because it was still on there the day before I sent her to the auction in Denton County. It was on sale and we bought it for our investors. We’ve paid $90,000. About two weeks later, I got a call from a mortgage company and they said, “We’d like to redeem that property.”

It got redeemed. It took 53 days and our investors made 25% on the $90,000 plus $2,000 a month in rent during that period of time. It was very unusual. That’s not the norm but it was a mortgage company out of Florida. They had a lot to do with hard auctions once. If the right hand doesn’t know what the left hand’s doing because six weeks after they paid us already, I got another call and they said, “Would you send us the deed?” It crossed my mind that with this company I could have said, “Yes, as soon as you send me the check.” It would have taken them three years to figure out they had already done it. I figured that jail time wasn’t worth it. It did cross my mind that that would be possible.

How do you handle the possibility of redemption when you rent the properties? Do you do month-to-month?

We use the standard TREC lease. In miscellaneous, we add in there a disclosure that says, “This property was bought at the tax sale.” The old owners have the right to redeem it and buy it back and evict you. You will not hold us responsible nor will you sue us for breach of contract.

TREC is Texas Real Estate Commission everybody that aren’t from Texas here. They redeemed, thought they got wiped out since it’s a non-government loan. This is probably somebody’s homestead on that big one outside of commerce?

Yes, it was a homestead.

They had a redemption period that they could come back at it?

They have a six-month redemption if they’re not home homestead. For this, you have two years but this was right away. If they do redeem it and it has a mortgage, the mortgage gets reinstated. If there is a mortgage, the mortgage company is more likely to be the owner. They had got more skin in the game. You’ve got 20% and they’ve got 80%. We’d love to buy tax sale properties with mortgages on.

We send out probably one or two wires a month for payments out to the different counties to avoid tax sales on our first liens. It’s important to keep track of that stuff and see what’s going on. Definitely good stuff to know. Arnie, I want to say thank you so much. You’re dating your next event. When’s the next event you have going on? You said, May 5th. Is that correct or when?

Next month. It’ll be on our website. The next event is in Los Angeles. I’m speaking at the real estate club there, the LA REIC, and then I’m doing a boot camp. I’m speaking at the Newport Beach for Realty411.

You’d be out there at Lloyd’s group, the LA REIA Club?

Yes, Lloyd’s.

Rather than negotiate with the IRS on their liens, can you wait out the 120 days for their lien to drop off?

If the IRS is notified of the sale 25 days before the sale, it extinguishes their lien, but they still have that 120-day redemption period. After 120 days, it drops off.

Would you negotiate with him or just wait until the 120 days?

I’ll negotiate right away. They’re anxious to get it settled. They don’t want to redeem it. They want the excess funds or cash or any way they can get it.

NC 11 | Tax Liens

Tax Liens: You not only want to get the right of redemption but the right to contest the sale.

You don’t want to wait four months to have to do something in case you can move it as well too. Are you ever getting the property owners to release their redemption rights?

Yes, you can do that. You want to get them to number one. You want to make sure you have to get everyone who has the right, not just the old owner, any lien holder. You not only want to get the right of redemption but the right to contest the sale. It can be done. We have done that.

The website is TXTaxSales.com. You can find Arnie at Arnie@TXTaxSales.com. Thank you for joining us on Note CAMP 5.0. I know you’re anxious to go watch round two of the Masters.

You’re doing a great job with this. This is a wonderful thing you’re doing.

I appreciate that. We got some more stuff, more marketing going out for this. This is an evolution. We keep adding to it every time we do it and we think we honed in and get a little bit better each time. I’m glad to have you as a part of this time around and we’ll look forward to have you in the next time we do it as well. How does that sound?

I’m all in.

It sounds good. Stay tuned. Otherwise, go out and enjoy.

 

Important Links

Love the show? Subscribe, rate, review, and share!
Join Note Camp community today:

About Arnie Abramson

NC 11 | Tax LiensArnie Abramson began buying houses at Sheriff Sales in the early 90’s. He has been an investor, landlord, mentor, educator and property manager ever since. He previously had a successful career as a financial planner and Vice-President of Marketing for a national Real Estate management company that marketed public

Real Estate Limited Partnerships.
Arnie is a frequent speaker and teacher at many of the real estate investment clubs in the Dallas-Fort Worth area, as well as in Vancouver, WA, Portland, Los Angeles, San Diego, and New York – New Jersey.

Arnie and his wife Pat own Valugistics Corp., the flagship company for entities offering services in areas such as property management, finance, mentoring, and educational seminars.

He is known for his “outside the box” approaches to Buy-and-Hold Investing and teaches how investors can buy houses that are already cash-flowing and have the sellers finance them for the buyers with little or no qualifying and avoiding many of the requirements for non-investor Seller Financing.

He is President of Texas Tax Sales Resource Group that has developed a service that provides whatever investors need to participate in Sheriff Sales including an affordable coaching program tailored to the needs of the investor.

Leave a Reply

Your email address will not be published.