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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.


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