By: Darius M. Barazandeh,
We have all heard the stories and heard the
claims about tax foreclosure sales. You know the stories where
someone purchases a house or property for $1,000 dollars with
a true market value of $50,000. They then turn around and
sell it for a huge profit. In fact everywhere I turn someone
is talking about the wonderful purchase opportunities that
tax sales and tax liens can hold. Before I started investing
in tax sales my first question was, "If this is such
a great investment technique, why is it that I have not heard
about it? There had to be a catch, something that no one was
telling me about this technique." The truth is that you
can gain a very favorable return by purchasing tax lien certificates
and tax deeds, but as with everything you need to learn from
other people's knowledge, use common sense, do your research,
and stay positive!
General Tax Sale Process
Almost all states allow for a
tax sale foreclosure process that allows common citizens,
just like us, to purchase tax sale properties. Here's how
If an owner of real property does
not pay their taxes the county or the taxing entity will file
a lawsuit to collect the unpaid taxes, and if such taxes are
not paid, the property will be sold at a public tax auction
to the highest bidder.
The certificate or tax deed will
be sold at a public auction and the opening bid will typically
be made up of the amount of back taxes owed. This amount will
usually be made up of:
- Delinquent Property Taxes
- Interest Charges
- Penalty Fees
- Legal Costs
- Administrative Charges and Fees
When a tax certificate or a tax
deed is sold, the purchaser acquires the rights held by the
county or taxing unit. Tax sales may be held annually, semi-annually,
quarterly, or monthly. There are no restrictions for bidding
in these sales (i.e., you do not have to be a real estate
agent, professional investor, etc.); however you usually must
be able to pay the bid amount within a short period of time.
For a specified period of time
the delinquent owner has the right to buy back or "redeem"
the property. This is called the right of redemption. In many
cases this redemption period may be as short as 6 months or
in states such as South Dakota and Wyoming, as long as 4 years.
If the delinquent owner does not redeem the property during
the specified time, then the successful bidder is entitled
to the property regardless of the purchase price. Let me say
that again: the successful bidder would be the owner
of the property even if it was bought for $1,500 and it has
a market value of $150,000!
That sounds great, but what happens
if the delinquent owner decides to exercise their right of
redemption? Do I lose my deal and all the money I spend at
the action? No not at all! In that case they (the delinquent
property owner) must pay you an interest penalty charge on
top of what you originally paid for the property. This interest
charge could be from 10% to 25% (for redemptions occurring
during the first year) or up to 50% (for redemptions occurring
during the second year). What this means is that you will
get back the money you originally invested plus the interest
charge while the delinquent owner will get their property
So in most cases either you purchase
real property for pennies on the dollar or gain a high rate
of return on the money you used to purchase the property!
Here is list of the returns paid
out at redemption for various states. Remember redemption
refers to the statutory or legal right for the original owner
to buy back the property.
20% first year
40% second year
50% second year
Let's look at an example so you can clearly
understand how the redemption return works:
George attends a tax foreclosure
sale and he is the successful bidder. He files the deed with
the County Clerk or Recorder's Office. Four months after the
deed is recorded the delinquent property owner "redeems"
the property. George receives his initial investment back
Here you can see that George was
the successful bidder on the tax sale property and he received
a tax deed at the auction (more on the difference between
deed states and certificate states in a later article). Also
note that since the original owner redeemed the property she
must pay George the original amount invested plus the state
mandated penalty return.
What Happens If the Owner
Does Not Redeem?
If the property owner does not
redeem you will typically get title to the property. That's
right title! Remember what I said above: If the delinquent
owner does not redeem the property during the specified time
period then as the successful bidder, you would be entitled
to the property regardless of the purchase price. Let me say
that again: you would be the owner of the property even if
you bought the property for $1,500 and it has a market value
What Kind of Deals Are Out There
Tax auctions can allow you to
buy some pretty substantial real estate for pennies on the
dollar. Let me show you some examples from my state of Texas
that went to sale last year:
Sale Listings from Harris County:
INDEPENDENT SCHOOL DISTRICT, ET AL VS. LOUIS ZINGELMANN,
INDEPENDENT SCHOOL DISTRICT, ET AL VS. ROBERT P NORMAN,
I.S.D. VS. 8916 TAUB ROAD INC
COUNTY VS. HOMECRAFT LAND DEVELOPMENT INC
INDEPENDENT SCHOOL DISTRICT, ET AL VS. G L PARR, ET AL
OF HOUSTON, ET AL VS. TUDOR PROPERTIES INC.
INDEPENDENT SCHOOL DISTRICT, ET AL VS. DELORES SALAZAR
INDEPENDENT SCHOOL DISTRICT, ET AL VS. HERMAN WHITE
Can you figure out why I shaded
some of these property listings? These would obviously be
the best deals to investigate and start researching immediately.
The shaded deals look great, right?
Yes, they sure do but you MUST realize that tax sale listings
can be fairly complicated to understand and read correctly.
I have run across situations where the significance of one
just number before a dash or hyphen can make or break the
WHOLE deal! So I want to warn you that nothing comes without
its hard work and proper knowledge. For every good deal that
you find there are 100 that stink! The best route for the
new and experienced investor is to keep learning, asking and
researching new opportunities. Always invest in your education
and find the right mentors.
Ever Stop Learning and Never Give Up
No matter what happens you should
never give up on learning or give in to the dark riders of
failure and fear. Did you know that fear motivates more human
action than any other emotion combined? Sadly fear stops many
people from trying to learn new things. And you know I don't
blame them! Sometimes it's really hard to keep learning and
growing when you always seem to get knocked down.
I got knocked down a bunch of
times then decided that I just had to find a way to make things
work. I started to change my mental attitude and think only
positive thoughts, see myself doing the things I was destined
to do, and completely fulfilling my purpose in life. I decided
to go forward regardless of the cost, regardless of the fear
and learn new ways to earn income and new ways to help others.
I realized that the more I learned
about investing the safer my financial future would become
and the more I would be able to enrich the lives of others.
I thank everyone for reading my article and being interested
in tax sales. Proper information is important so always ask
the right questions and find real mentors who have a passion
Don't forget that this is just
information. The real wealth is inside us all. It comes from
the power of our minds. So let's open our eyes to all the
new things in front of us, let's open our hearts to the person
we were born to become and towards bright prosperous lives
of abundance. Applied faith and knowledge are always your
first two steps!
The author, Darius M. Barazandeh, JD, holds
both a Doctorate of Law and a Master's Degree in Finance.
He is the President and founder of
DMB Real Estate Enterprises, Inc. that invests in tax
sales, lease-options, mobile homes and residential mid-rise
construction projects. Frustrated by the lack of realistic
information regarding tax foreclosure sales and other investments,
he is "unlocking the secrets" to many of these
creative investment methods. After years of diligent research,
investing, and consulting he is presenting his no-nonsense,
STEP-by-STEP approach to success through his courses and