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Author: Dragynox Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 52  
Subject: looking for more information Date: 10/11/2004 2:56 PM
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Hello,
I've just found out about tax lien certificates. Where is a good (trustworthy) place to look for more information about the details of investing in tax lien certificates?
Dragynox
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Author: jrdubs Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 3 of 52
Subject: Re: looking for more information Date: 10/19/2004 9:59 AM
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As this is a new board, I'm not sure we'll get much activity for a while.

I am also new to certificate investing, but I found the book "16% solution" a good first place to go. After that, I'm also still at a loss. Hopefully someone with more exprience than both of us will come along and chime in.

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Author: LuckyUte Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4 of 52
Subject: Re: looking for more information Date: 10/19/2004 11:27 AM
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Hey Dragynox:

I work as an asset manager dealing with delinquent taxes on property and work with tax sale certificates throughout my day.

I agree that the 16% solution by Joel Moskowitz is an excellent primer. However, it was written in 1994 and the industry has changed quite a bit since then.

I work for Banks, Hedge funds, Trusts, and other institutional investors that invest in tax liens. Many of these institutional investors began their investing around that 1994 time period. Because of this institutional money, competition for the bidding is keen. Therefore, yields are down and premiums are up.

I should tell you right up front that tax liens are a risky investment. Here is a thread from the Real Estate Investing board here at the Fool that provides some good basic information.

http://boards.fool.com/Message.asp?mid=17661904&sort=whole

If you have other more specific questions, ask them, and I will answer to the best of my ability.

Roger

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Author: WizardPhool Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5 of 52
Subject: Re: looking for more information Date: 10/19/2004 11:14 PM
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I am also new to certificate investing, but I found the book "16% solution" a good first place to go. After that, I'm also still at a loss. Hopefully someone with more exprience than both of us will come along and chime in.

--------

I just bought this book as well and am looking forward to starting it. Robert Kiyasaki (the guy that wrote Rich Dad Poor Dad) uses this form of investment. You might try using his website (richdad.com). He might have some more information there.

The Wizard


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Author: WizardPhool Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6 of 52
Subject: Re: looking for more information Date: 10/19/2004 11:43 PM
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I should tell you right up front that tax liens are a risky investment.

------------

I read the thread you gave and thank you very much. I am a newbie at this form of investment. As an insider, why exactly do you feel lien certificates are a risky investment? I thought they were extremely safe because they are guarenteed by the city you pay the taxes to, or by the sap who hasn't paid his taxes? Any information would be greatly appreaciated. Thanks.

The Wizard


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Author: activeREinvestor Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 7 of 52
Subject: Re: looking for more information Date: 12/6/2004 6:20 AM
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There are some other sites that have a good bit more info. It would be nice if folks found this site but if that does not work people who are interested can go there.

I will hold back from posting the URLs so that there is less incentive for the folks here to migrate off fool.com. You can reach me by email if you really need specific pointers. Google will connect you otherwise.

BTW - For folks who are interest in TLCs an alternative that might fit better is discounted notes. The reason I say this is I found that TLCs are somewhat difficult to invest in if you can not attend auctions, etc. They also are in small amounts in many cases. With discounted notes I could invest while traveling for work and at the same time invest more with what I judge to be a similar risk profile.

I do have 21+ years as a RE investors so liens, notes, and how to value residential property is something I have a handle on.

Questions?

John

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Author: brewer12345 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8 of 52
Subject: Re: looking for more information Date: 12/14/2004 12:00 PM
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After being tantalized by ActiveRE, I went looking for some info on Amazon. I am working my way through the 16% solution, but I found something that was just published and does a very good job of explaining the lay of the land (including the motivations and actions of institutions in this space): "Profit By Investing In Real Estate Tax Liens" by Larry B. Loftis, Esq.

John: Have you bought liens in NJ? I am trying to find out as much as I can before I start diving into this. I understand the auction process, etc., but what I need to know is the sequence of events and what the investor has to do if the lien is not redeemed in the specified time period. Would a county clerk be a good source for this? I know in NJ each individual municipality holds its own lien sales.

Can you talk a little bit about discounted note investing? Where do you find investment oppportunities? What kinds of returns are we talking about? I assume that you evaluate these notes like any other debt instrument (i.e. borrower's ability to pay, amount and quality of collateral, etc.). Anything peculiar to discounted notes?

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Author: LuckyUte Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9 of 52
Subject: Re: looking for more information Date: 12/14/2004 4:49 PM
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brewer12345, I spend most of my days liquidating TSC's in New Jersey.

Ask away.

Roger

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Author: brewer12345 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10 of 52
Subject: Re: looking for more information Date: 12/14/2004 7:27 PM
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Ask away.

Roger
*******************

Cool! For starters, what do you mean by a TSC?

I think I understand the concept and the auction process. What I am looking to understand is what happens after the auction. Let me sketch out what I think happens, and maybe you can correct my errors and fill in the blank, OK?

So I find out about an auction and research the properties on which there are liens. My due diligence is probably going to focus on what the property is (i.e. is it good collateral and where is it) and who the owner is (individual primary home, vacation home, developer, commercial real estate of some sort, etc.). Once I scope out properties with which I am comfy, I attend the auction at which I play the bid down the rate game and hopefully purchase a few liens. I pay up for the liens and then the delinquent property owner has two years to pay. During that time, I earn whatever rate I agreed to in the bidding process and the applicable penalty (2% or 5%, depending on the size of the lien). If the owner pays up, the municipality cuts me a check. If not, I somehow have the right to foreclose and take ownership of the property. I'm a tad hazy on this part of the process.

Questions:

- Is what I have described accurate?

- Once I buy a lien and pay for it, do I need to do anything other than wait?

- If I don't get paid after two years, what is the process to foreclose? Is it time-consuming and expensive?

- What am I missing?

- Any idea what kinds of rates are being gotten at auction?

Tkanks very much for your offer of enlightenment. It simply isn't that easy to find much out about tax lien investing.

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Author: activeREinvestor Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11 of 52
Subject: Re: looking for more information Date: 12/15/2004 6:34 AM
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After being tantalized by ActiveRE, I went looking for some info on Amazon. I am working my way through the 16% solution, but I found something that was just published and does a very good job of explaining the lay of the land (including the motivations and actions of institutions in this space): "Profit By Investing In Real Estate Tax Liens" by Larry B. Loftis, Esq.


I will have to take a look at the book you found. The 16% solution is very old so something more recent should be interesting.


John: Have you bought liens in NJ? I am trying to find out as much as I can before I start diving into this. I understand the auction process, etc., but what I need to know is the sequence of events and what the investor has to do if the lien is not redeemed in the specified time period. Would a county clerk be a good source for this? I know in NJ each individual municipality holds its own lien sales.


I have not purchased liens as I judged them to be a bad fit given that I travel. I would not be able to make it to auctions because of my schedule. I considered liens purchased over the counter but decided to go the discounted note route. There are other reasons but part of it is I am too lazy to focus on liens when I can focus on notes.


Can you talk a little bit about discounted note investing? Where do you find investment opportunities? What kinds of returns are we talking about? I assume that you evaluate these notes like any other debt instrument (i.e. borrower's ability to pay, amount and quality of collateral, etc.). Anything peculiar to discounted notes?


I find the notes through my RE investing network. I have been investing in RE for over 21 years so deals come past my desk on a regular basis and some of these deals involve notes.

Notes can be located through the public records and similar sources. All notes worth considering will be recorded.

The credit process is pretty much as you would expect. A note that has existed for a period of time has the benefit that the payment history can be reviewed. You may also find that an older note will have more equity above it if the property has risen in value.

For me discounted notes are more conservative then the RE deals I would do. I go from being the one who has the most to lose (the investor is the first person to lose as you have you money last in line) to being in the banker's position. As the lender I should be the last person to lose money if the deal does not go well.

What I give up is appreciation as the position is a fixed position with no variable upside.

John

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Author: LuckyUte Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12 of 52
Subject: Re: looking for more information Date: 12/15/2004 5:04 PM
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Cool! For starters, what do you mean by a TSC?

Tax Sale Certificate. It is the piece of paper in NJ that evidences the debt you own. This piece of paper (the TSC) is recorded on the land records as a lien.

What I am looking to understand is what happens after the auction. Let me sketch out what I think happens, and maybe you can correct my errors and fill in the blank, OK?

You betcha, go ahead!

So I find out about an auction and research the properties on which there are liens. My due diligence is probably going to focus on what the property is (i.e. is it good collateral and where is it) and who the owner is (individual primary home, vacation home, developer, commercial real estate of some sort, etc.). Once I scope out properties with which I am comfy, I attend the auction at which I play the bid down the rate game and hopefully purchase a few liens. I pay up for the liens and then the delinquent property owner has two years to pay. During that time, I earn whatever rate I agreed to in the bidding process and the applicable penalty (2% or 5%, depending on the size of the lien). If the owner pays up, the municipality cuts me a check. If not, I somehow have the right to foreclose and take ownership of the property. I'm a tad hazy on this part of the process.

You have actually described the process pretty well. The best advice anyone can get is to keep the value of the underlying property in mind when buying the TSC. If there is any equity in the property at all, in other words, it has value to the taxpayer, once you begin a foreclosure or other collection activity, they will most likely redeem. There are two ways to look at the investment, one is being redeemed and making whatever interest has accrued, and two is going after the underlying real estate.

Is what I have described accurate?

Pretty darn close

Once I buy a lien and pay for it, do I need to do anything other than wait?

You can always try to collect on it from the Taxpayer, but there are very strict federal collection laws you would have to follow and be aware of. Waiting is not a bad idea either.

If I don't get paid after two years, what is the process to foreclose? Is it time-consuming and expensive?

There are many law firms in New Jersey that will foreclose your tax lien for you. I can give referrals if you desire. In general, a tax lien foreclosure in NJ will cost approximately $2,000-$2,500. Time is the real wild card, if the property is pretty clean (as far as liens) then title work is quick and Service of Process goes quickly. If there are multiple entities with claims on the property, or if there has been a death without Probate being opened, then Service of Process can be more complicated.

What am I missing?

One thing to keep in mind in New Jersey is that as the superior lien holder (having recently purchased the TSC) you have the right to purchase subsequent taxes that come due and roll them into your current TSC. In other words, adding to the value of the original debt.

Also, priority is a big thing to watch out for in NJ. If you decided the property wasn't worth putting more money into buying the subsequent taxes, then the Town may auction the new debt off to another investor. Now, all of sudden, there is a TSC that is superior to yours. Unlike some states where all tax liens on a property have equal priority (CT for example), in NJ, the most recent TSC has priority over all previous TSCs. However, junior TSCs do have rights of redemption. So, you need to be careful that your lien doesn't become too subordinate to other liens.

Bankruptcy is also something that can be tricky to deal with. If you start foreclosure, many people will file for bankruptcy to protect their interest in the property. It would be important for you to hire a competent BK attorney to protect your interest. Most of the same firms that do foreclosure can handle the BK issues as well.

Any idea what kinds of rates are being gotten at auction?

With the real estate market the way it is now in NJ, there is a lot, and I mean A LOT of institutional money out there buying. I understand, (though I haven't done it recently) that the bidding is crazy and that the word on the street is that the institutions are overpaying in order to have somewhere to put their money. Just one man's opinion anyway. I think the individual investor can still get good liens on the properties they have seen because they know the market for that real estate better than a lot of the instituitions do. They are buying tons of liens, while you are cherry-picking the better ones. That is where your advantage would be.

Hope this helps.

Roger








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Author: brewer12345 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 13 of 52
Subject: Re: looking for more information Date: 12/15/2004 10:32 PM
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Roger:

Thanks very much. One further question, if you don't mind. If you have to foreclose and lay out cash to do so, are you entitled to recover your costs if the TSC is eventually redemmed, or are you out the money?

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Author: LuckyUte Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 14 of 52
Subject: Re: looking for more information Date: 12/16/2004 8:25 AM
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If you have to foreclose and lay out cash to do so, are you entitled to recover your costs if the TSC is eventually redemmed, or are you out the money?

Yes, you can recover some of your costs. The court will set how much of your legal fees you can recover. It is almost never the whole amount, but at least you can get some of it back.

I misstated something in my earlier post I want to be clear on. I mentioned that you could always try to collect direct from the taxpayer. That is true, however, the law in NJ is that there never is any personal liability for real estate property taxes. Just something to keep in mind.

Also, forgot to mention that there is a very active "aftermarket" for TSCs in NJ. If there is a specific property in which you have interest, you can call the Tax Collector to find out if there is a TSC already issued, if there is, they can tell which 3rd party investor owns the TSC. You can contact those people to try and buy the debt they already bought. Many times, these institutions are looking to liquidate quickly, to get out from under, and you can get the lein for a reduced amount.

Roger

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Author: activeREinvestor Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15 of 52
Subject: Re: looking for more information Date: 12/16/2004 8:39 PM
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I understand, (though I haven't done it recently) that the bidding is crazy and that the word on the street is that the institutions are overpaying in order to have somewhere to put their money.

Roger,

What are you investing in now if not TSC deals?

What sort of rates would you expect (a guess as I know you said you have not been that active recently)?

John

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Author: LuckyUte Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 16 of 52
Subject: Re: looking for more information Date: 12/17/2004 8:36 PM
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What are you investing in now if not TSC deals?

What sort of rates would you expect (a guess as I know you said you have not been that active recently)?


Not much of anything. The secondary market has been pretty good, we are liquidating not buying.

Spoke to a friend today who has been attending and buying at NJ auctions, he told me that they are buying at 0% with a premium that scales up as the face value of the TSC goes up. Once they buy, they are VERY diligent about buying the subsequents which are at 18%. After a while, they can get a blended rate that can make them money in case of a redemption. He also told me that their cost of funds is only about 5%, that helps too.

Something interesting he said that may be where an individual can look, he told me that many of the institutions are going to the Muni Collector and offering to buy -- at a discount -- the TSCs that were not sold at the auction. Yes, this is low quality stuff, but with good DD an individual might be able to find some nuggets. Also, those TSCs bought after the auction have an 18% interest rate.

Roger


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Author: activeREinvestor Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 17 of 52
Subject: Re: looking for more information Date: 12/18/2004 1:33 PM
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Roger,

Great detail. Thanks for sharing.

I choose not to go with TSC's as I lacked the time to do the DD and attend the auctions.

I have been investing in discounted notes and earning double digit returns. As I can invest larger sums easily and the DD is slightly easier it fits my needs.

John

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Author: FuwlEd Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 18 of 52
Subject: Re: looking for more information Date: 1/5/2005 2:20 AM
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John, where in public records do you look or the other similar sources? I assume the County Clerk's office?

Thanks



Notes can be located through the public records and similar sources. All notes worth considering will be recorded.


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Author: activeREinvestor Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19 of 52
Subject: Re: looking for more information Date: 1/5/2005 4:57 AM
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Notes can be located through the public records and similar sources. All notes worth considering will be recorded.


I completely agree.

If the note is not recorded assume that it does not exist. If the seller wants to tell you otherwise ask them to call back after then record it.

John

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Author: ecchiang Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24 of 52
Subject: Re: looking for more information Date: 4/28/2005 3:00 PM
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After being tantalized by ActiveRE, I went looking for some info on Amazon. I am working my way through the 16% solution, but I found something that was just published and does a very good job of explaining the lay of the land (including the motivations and actions of institutions in this space): "Profit By Investing In Real Estate Tax Liens" by Larry B. Loftis, Esq.

I just read Loftis's book too, I though it was really clear and easy to read and read it in two days! However, it didn't really going into the details and lay out what you need to watch out for when investing in liens.

I was all psyched about liens and called my county courthouse. Turns out they sell all their liens to some private company! That was disappointing. Anyone know anything about investing in liens online, or in Ohio?

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Author: LuckyUte Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 25 of 52
Subject: Re: looking for more information Date: 4/29/2005 8:11 AM
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ecchiang:

I was all psyched about liens and called my county courthouse. Turns out they sell all their liens to some private company! That was disappointing. Anyone know anything about investing in liens online, or in Ohio?

I know that in Ohio there are only (I believe) four counties approved by the State to sale liens, Franklin, Cuyahoga and two others I can't remember right now. I know that Cuyahoga has sold liens in bulk to investors in the past. It saves the County the expense of holding an auction, such as publicizing, materials, staff, etc. The County puts out an RFP and investors bid. Makes it simpler and cheaper and in today's environment, they don't need to worry about getting less than 100 cents on the dollar.

I believe Franklin County (Columbus) sales by auction, but I am not sure. You may wish to verify which counties are allowed to sell liens, and then check to see if they have an auction scheduled or if they sell by RFP in bulk.

Roger

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