- The Washington Times - Friday, August 17, 2001

How would you like to make money paying someone else's real estate taxes? There's a little-known investment opportunity available in 31 states where investors can put up from as little as a couple hundred dollars to tens of thousands of dollars.
You might be thinking, "I pay enough taxes as it is. Why would I want to pay someone else's taxes, too?" Well, how does an annual interest return of 18 percent to 50 percent sound?
These are available through tax-liens and tax-deed certificates sold throughout the nation on a county basis. Local governments place tax liens on property held by taxpayers delinquent in real estate taxes. Figuring that it won't get that money right away, the local government auctions off the liens to investors once or twice a year. These are called tax sales.
If Mr. Smith owes $2,000 in real estate taxes and hasn't paid it, the county will place a lien on his property and then auction that lien to an investor. The investor gets the lien for $2,000, and the county gets the money it needs right away to pay its ongoing expenses.
Meanwhile, the treasury or finance department starts going after the money from the delinquent taxpayer. It sends notes warning of further action and placing stiff penalties and interest charges on the tax. These interest charges can be as high as 50 percent and that's how the local government then can turn around and pay investors the high interest rates of 16 percent, 18 percent, 20 percent and more.
The place to find these investments is at the local treasury or finance department. There also are Web sites where the information has been compiled in either print or electronic format. You could end up paying as much as $39 per state for the information or, as on one site I visited, $49 for the whole country (encompassing 3,300 counties). Because more than likely you're going to go after local liens to start, save yourself the money and contact your local treasury or finance department. If you don't know where that is, call the main information number for your county or city and ask for the tax department it can help you from there.
Basically, these are short-term investment opportunities. After the lien has been auctioned off, the county lets the owner know he may lose the property to the tax-lien certificate holder if the taxes aren't paid and with even more interest and penalties. This gives the property owner another opportunity to redeem the tax bill and keep the property. If the owner doesn't, the tax-lien certificate holder can foreclose on the property.
In some areas, instead of the investor's having to foreclose on the property, the government actually sells the investor a tax deed to the property meaning if the taxpayer doesn't pay the taxes, the investor becomes owner of the property outright.
There are amazing stories about people hitting it rich in these tax sales.
One floating around is about a gentlemen in Tulsa, Okla., who paid $17 at a tax sale for a property he then sold for $4,400 and another about a property that was bought for $298 in back taxes and sold for $8,450.
There always are risks, too, though the risk of a property's being trashed before the investor gets access to it, the possibility that the investor won't follow the tax-sale procedures properly and will lose all his investment money as a result.
Stories about those occurrences also are documented.
Most of the delinquent property owners (about 95 percent to 98 percent) actually pay the taxes, so most folks who invest in these certificates are doing so for the high interest paid on their money.
Nevertheless, if you're not willing to accept the risk of having to foreclose on someone (and taking on the added expenses of that action) this may not be an investment for you.
In some jurisdictions, you may "win" the property, but then you may be responsible for all past years of unpaid taxes and mortgages on the property.
Be aware of these risks and act accordingly. An investor must research the properties (which usually are publicized in a newspaper or on the tax department's Web site a few weeks before the sale).
There's a lot more to these sales, but the various jurisdictions have different rules.
Visit the Montgomery County tax-sale Web page for a good example of what will be required of tax-sale investors (www.co.mo.md.us/services/finance/CountyTaxes/Info%20Taxes/tax.htm).
If you're interested, knuckle down to researching the process, visit an auction first to watch how it's done and then decide if this is an investment for you.
M. Anthony Carr has written about real estate for the past 12 years. Send comments and questions by e-mail ([email protected]).


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