Top Markets for Tax Delinquent Homes

• By Kent Clothier
• 5 years ago

Where are the top markets for tax delinquent homes? How do you find them? 

Tax delinquent homes can be an attractive niche for real estate investors. This is especially true in times like these when many investors are finding it more challenging to find real deals through their old channels.

So, what are they? Why do properties end up in this situation? How do you take advantage of the opportunities as an investor? Where can you find the deals?

What Are Tax Delinquent Homes?

When we talk about tax delinquent homes we are typically talking about properties on which the owners have defaulted on their property taxes. They are late on paying these bills.

This doesn’t just have to apply to single family homes either. It works for any kind of real estate, including:

1. Vacant lots and raw land
2. Condos
3. Townhouses
4. Construction projects
5. Commercial real estate
6. Multifamily apartment buildings

When a homeowner does not pay their entire property tax bill on time, the local taxing authorities put a lien against the property. That means the property theoretically cannot be sold or refinanced until those taxes are satisfied.

Then the tax lien is put up for auction to investors. Investors bid on the returns they are willing to purchase the debt for. This may run from 4% to 18% depending on the demand for tax liens in that area. 

If the homeowner brings their taxes up to date, including fees, fines and interest, then the investor collects their returns, and the lien is released.

If the homeowner does not redeem themselves within the grace period (approximately 2 years), then the lien holder (investor) is able to foreclose and take the real estate secured by the lien.

Why Properties Become Tax Delinquent

There are many reasons for tax delinquent properties, including the following.

Financial Distress

As with any other bill, it is not uncommon for property owners to fall behind due to job losses, medical bills, lawsuits, divorce, and just generally over stretching themselves. 

Paperwork Issues

Sadly, one of the most common reasons for property tax liens is paperwork mistakes. Some property owners have lost their homes for less than $10 in erroneous fees or late fees which they overlooked or for which payment was not recorded. 

Fast Rising Property Taxes

In many cities and states property taxes are rising fast. This can be a combination of escalating property tax rates and special assessments, as well as increasing property values and tax assessed values.

New Tax Law Changes

New tax law changes have really increased the financial burden on many property owners. In states with state income taxes, caps on deductions mean property owners can no longer fully deduct their mortgage interest and property tax payments on their federal income taxes. 

Fraud

Recently we’ve seen more and more cases of various types of real estate fraud and questionable practices. Sometimes mortgage lenders and title companies who collect property tax payments into escrow never pay them. Leaving the owners out of their money and buried under fees before they know what hit them. Some cities and counties also seem to be using this strategy to make money. They have systematically foreclosed on tax delinquent properties and resold them for big profits. 

IRS Tax Liens

In addition to property tax liens IRS tax liens can be attached to real estate as well. These can present opportunities among motivated sellers and for helping those in this tough situation with creative financing techniques.

Why Buy Them?

There are several ways to invest in tax delinquent properties. This includes bidding on tax liens and simply collecting great yields when homeowners catch up and pay them off.

Other real estate investors will use these liens as a backdoor acquisition strategy to take the property at deep discounts. The property can then be rented out for cash flow or flipped for lump sums of cash.

Or the properties can be purchased directly with creative financing or with cash and can be flipped or rented out.

Top Cities For Tax Delinquent Homes

According to Foreclosure.com five of the top cities for tax lien sales right now include:

1. New York City
2. Washington DC
3. Houston
4. Atlanta
5. Chicago

How To Find Tax Delinquent Homes For Sale

There are three main ways to find tax delinquent homes:

1. Attend local courthouse tax lien auctions
2. Bid on tax liens online
3. Use REWW SMART Suite to instantly find all the tax delinquent homes in America