Investing in tax lien properties can stir up controversy in some circles, but the purpose of this article is not to debate the pros and cons of tax lien investing. It is simply to outline how a real estate investor would invest in tax lien properties.
Having personally done this in New Orleans, I will refer to the guidelines set out by the State of Louisiana. If you are interested in buying tax liens in another state, this article will be a good introduction to the process which is similar in many states. However, laws do vary from state to state and I recommend learning the laws in your state before making any investments.
Where can I buy property tax liens in New Orleans?
Prior to 2008 the City of New Orleans would auction off the tax title to properties with delinquent tax liens downtown. Since 2008 the auctions are held entirely online, through a private company Civic Source. Leading up to the 3 day auction(yes, the auction is open for three consecutive days) properties with delinquent taxes are listed on the Civic Source website. The properties are listed by address and by dollar amount of delinquent property taxes including auction fees, interest and penalties assessed by the City of New Orleans.
How does the bidding process work?
Anybody can bid on the tax liens as long as they were registered with Civic Source before the auction. The easiest way to do this is to set up a bank account in your user profile. It doesn’t cost anything to do so.
Once the auction opens bidders bid on a percentage interest in the property, should title pass to the winning bidder, rather than on how much they are willing to pay for the tax title. In other words, the amount paid by the winning bidder is equivalent to the delinquent taxes and penalties assessed for the tax bill, but the bidder willing to take the smallest interest in the property wins. And the earliest bidder wins, trumped only by a bid for a smaller ownership interest the property.
How do I make money investing in tax lien properties?
In Louisiana any tax lien title holder is entitled to the following returns on his or her investment:
- A 5% penalty accrues immediately in favor of the tax lien investor on the full amount paid at the auction to acquire the tax title.
- An additional 1% per month is calculated not only the amount paid at auction, but also on taxes paid for additional years.
-Annualized return=17% on first year, 12% on each additional year.
-Your interest in the property is protected by state law as the tax lien takes precedence over all other liens, including first mortgages on the subject property.
What happens next?
The owner of the property has three years to redeem the tax lien by paying the City of New Orleans the full amount of delinquent real estate taxes, penalties and interest. The city then disburses the funds to the investor, or tax lien title holder.
If the property tax lien is not redeemed in three years, the investor can move forward with a court proceeding to “quiet” the title, in which case when granted he or she would become an owner in the property, free of all existing mortgages.
There are more details involved in this process so consulting an attorney or reading the real estate law around tax liens in your state is a good idea.
Great article, very educational on the process of purchasing tax liens. I am trying to get a couple of tax liens here in the city of New Orleans and i have a couple of simple questions Please email me if u can Tyronne_Calvin@yahoo.com
Hi Tyronne,
Glad you enjoyed the article. What kind of questions did you have regarding tax liens?
Hello Andy, I purchased a lot at tax sale in 2008. Been paying taxes, mowing etc. I have finally gotten in touch with the former owners who seem incapable of dealing with anything but state they want the property back and will pay $300 per month to redeem until all is paid. I do not want to just take their money without some kind of agreement. Could I just get a promissory note online and set this up myself? I don’t think they will be able to follow through tho and would rather just obtain all legal rights to property. Can I wait till the 5 year period passes, put an ad in the Picayune and be done with it. Many thanks for any advice.
Hi NIta,
First of all, I agree that any arrangement you choose to make with the property owners should be in writing. If you choose to go that route, I would suggest drafting an agreement that is specific about how much they need to pay each month and whether or not the interest will continue to accrue in your favor during that time. Keep in mind that all redemptions are done through city hall, so if they fulfill their end of the bargain you will have to be wiling to pay the City of New Orleans the full redemption amount at that time. I would also make it clear in the agreement that if they miss a payment they are in default in which case you have no obligation to refund their money or redeem it for them. Please consult a lawyer familiar with the tax title process to ensure that you don’t relinquish any future rights by accepting payments. I am not an attorney and only share my personal real life experience on the matter.
It doesn’t sound to me however that you are interested in going that route. If you bought the tax title at the 2008 tax sale, the redemption period started the day your title was filed downtown, not the day of the tax sale. Nonetheless the three year redemption period has expired and you can move forward right now to quiet title. The laws have changed since 2008 but an attorney can argue that your case falls under the prior laws which is in your favor. Regardless, just running an ad won’t complete the process. You must go before a judge to attain title to the property.
what is the address of the tax lien property? If the owner wants to pay you $300/month, you don’t have a choice. They have a legal right to redeem their property. That’s just the reality. They may have no real interest in redeeming the property. Ask them how much money they would want to relinquish their claim to the property. They may be more interested in holding you hostage for a payoff and have no real interest in the property. Pay them off and get a quit-claim deed. Once you get a quit-claim deed, there is NO REDEMPTION PERIOD. Which means you can file the deed immediately.
I missed the last auction for a blighted house i am interested in.I found out it will be up for auction AGAIN in maybe sept. TBA, but would like to purchase it now.It is right next to the house I just purchased and it is causing a lot of health hazards. The city had numerous complaints about it but so far nothing has been done.Please let me know if there is a way for me to purchase it now.
Hi Miranka,
If it is a blighted house, your best bet is to go directly to NORA. NORA may actually own the property if it is blighted. I believe their office is still on Poydras across form City Hall. If it was up at the most recent tax sale and didn’t sell, the City of New Orleans will likely move it to the next adjudication sale which would be good for you because at an adjudication sale, you walk from the auction with clear title unlike a tax sale where there is a three year redemption period you have to wait out.
The fastest way to purchase it now, if NORA doesn’t own it, would be to track down the current owner, inform them that there are liens on the property, and negotiate a price. To do this, go to the City of New Orleans website (you will need the tax bill number) or the assessors website (http://opboa.org) and see who is listed on the tax bill as the owner.
If you want to further accelerate things, try getting some code enforcement liens placed on the property if there are legitimate hazards.
Hello,I’m closing in on the 3year period to attempt to gain full title for 2properties I purchased in the Tax Sale of 2009.Can you please tell me how to go about filing for Quiet Title with the courts or the steps that’s needed?Because I’m planning on representing myself,and I need some guidance.Thanks.
Thanks to Andy for this helpful blog. Hopefully NORA and the city will be moving blighted properties to auctions sooner and more strategically in the future.
Thanks Kathleen. Yes, hopefully the process will speed up.
Hello –
Thank you for your article. I have been trying to figure out exactly how to get full ownership of the house i ‘purchased’ in the tax sale of 2008. It is so much more complicated than i thought. (I had formerly purchased a ‘sheriff auction property and that was easy!) It seems i must get a quit-claim deed voluntarily from the former owners – ! – or else i have to go to court – ?!.. I have gotten a lot of confusing and conflicting answers about this whole process… i was hoping you could tell me – is there any way i can take full legal ownership without hiring a lawyer/going to court/ getting the quit-claim deed? I would so much appreciate a response – i have called city offices, talked to lawyers… gotten a lot of different answers. -Thank you very much!
Hi Ena,
It is true that it is next to impossible to get a clear response from attorneys and city officials, but the law is very clear.
If you win the Tax Title at the auction, the current property owner is protected with a three year redemption period, during which you earn interest and penalties. After the three year period, you must advertise in a local publication, such as the Times Picayune, your intention to take ownership interest in the property. The procedure is to file with the court to quiet the title, giving you clear title to the property. This is done during a six month period after the three year redemption period within which the property owner can challenge your suit to quiet title.
However, after five years of holding Tax Title, you can have the title quieted within sixty days and the property owner has no recourse.
And to make sure I answer your question clearly, there is no way to take title within the three year redemption period without the cooperation of the property owner. However, if the property is deteriorating you can have code enforcement liens placed on it, giving you the right to make repairs which should motivate the current property owner to sell you the property.
Hi Andy – Thank you so much for your response. It is the most hopeful thing i have heard so far. I wonder why it is sooo hard to get straight-up information on this? Anyway, i just wanted to see if i could clarify a couple of things, sorry to bother you some more…—So, as the 3 years are up i can just go file with the court to quiet the title (whatever that entails) and put an ad in the Times Picayune stating that i intend to take ownership interest of the property. And this does not require a lawyer – ? And i do NOT have to get the quit claim deed from the former owners? But for SIX months after i file with the court the former owners have the right to challenge me in court? Thank you so much for any further information you can offer. I really appreciate your assistance, this all is just so shrouded in mystery by the city, lawyers, etc… Thanks again—-Ena
Ena, you are pretty clear, if the 3 year redemptive period has expired, you advertise your intention to file, file and wait out the 6 month period. The owners may fight your claim, but they either have to pay you penalties + full interest, or have some reasonable reason to have not redeemed the property to this point – I’d assume a reasonable reason would be, incomplete succession or something similar.
Hi: Is there an active secondary market for tax certificates that someone else already owns?
There is an active secondary market for tax liens at maturity. If you’d like to sell a couple visit my site and let me know about them http://www.gbennett3.com.
Hi Andy,I wanted to know if you have any experience or knowledge regarding purchasing adjudicated property sales? Are there any tips or advice that you can give in order to avoid pitfalls in this particular process? Does a buyer have to go through the auction process to acquire the property or can he/she go directly to the city tax authority to purchase adjudicated properties? Lastly, can a buyer obtain a current list of adjudicated properties or does he/she have to wait for the auctioneer to indicate on the civisource.com website?
Thank you for your assistance
Hi Courtney,
I think if a property has already been adjudicated, the title is clear which makes me think you probably could go directly to the city without waiting for the auction. I am not 100% sure though. One of the nice things about the adjudicated auctions is you take clear title to the property immediately, unlike a tax sale where you have tax title, not title to the property.
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I purchased a propety at a tax lien in 2010. I understand that I can’t take title to the property. However, the property is vacant and I would like to take possession of the property. It is a building and I would like to rent out some of the available space. Can you tell me how I can do that? Also, once a purchaser has acquired a property via a tax lien, how can I protect my interest from any hazards. I have money tied up in a property purchased via a tax sale and I would like to insure it. Can I insure a property or my interest in tax purchased property? Thanks.
The redemption period of three years is unavoidable as it is a last line of defense to protect the owner’s title, so absolutely not, there is no way you can take possession or collect rents on the property until you have clear title. Property rights is one of the most important fundamentals that our country is based on, and they are taken very seriously.
Can I insure it? Once a purchaser has acquired a property via a tax lien, how can I protect my interest from any hazards. I have money tied up in a property purchased via a tax sale. I continue to pay yearly taxes on it and I would like to insure it. Can I insure a property or my interest in tax purchased property? Thanks.
andy, It is my understanding that through “acquisitive prescription”, the abandoned property *can* be used. Maintenance and use of the structure, however, does not negate the owner’s right to redeem.
Hey Ande,
Thanks for your response. Regarding property tax title sales why does the purchaser willing to bid on the least percent ownership interest in the property the winner when there are multiple bidders?
Hey Andy,
Thanks for your response. Regarding property tax title sales why does the purchaser willing to bid on the least percent ownership interest in the property the winner when there are multiple bidders?
When the legislature made that change to the law, which I believe was in 2008, they likely felt that it protected the delinquent property owner from losing all interest in their property. Whether this is fair or not is a moral question, and how and why it came up in the legislature is likely a matter of politics. That’s my opinion anyhow.
Andy,
I’m not totally clear on the % of ownership part of this. Where does that have significance in any of the possible outcomes? If I win at 1% and after the max 3 years and 6 months and I have no challenge, do I own 100%?
Where does owning more interest in the property have benefits?
Thanks for taking time to look over this.
Joe,
That is a good question. Check out my reply to another visitor here: http://www.neworleansrealestatenow.com/contact/#comment-67
Hi Andy:
I also bid on a property at the New Orleans 2008 on-line sell. I only bid 1% interest and won. I have tried to contact the owners via certified mail for the last 3 years (with no success or response). The taxes have not been paid since the time I paid them in 2008. Now – the city has requested that I pay the back taxes for 2008 – 2011. I am skeptical because I do not want to lose more money. The 3 years is officially up on 1/29/12. I learned that the property has 2 mortagages on it and I also sent letters to the mortgage companies (no reply). Questions – if the owner does not pay by 1/29/12 – can I pay the due amount at that point to take ownership? And – does it matter about the 1% interest or should it have been 100% interest to get the property? Also – there are renters living in the property. What about them? What about the banks – do I have a fight with them?
Hi Sharon,
Below is a response I made to another visitor with the same question:
That is what everybody wants to know. The percentage interest was not put into law until 2008, and since it takes a minimum of three years before the tax lien holder can move to get title of the property, there has not been one instance yet (being 2011) where a judge has had to rule on this. On one hand, you would think that the intention of this law is that the lien holder would get an interest equal to the percentage they bid on, but there is other language in the law that implies the lien holder is entitled to full interest. I am not going to dig it up for this post, but I have read the law on this and if I were suing to quiet title, I would argue for 100% interest regardless of what I bid. I have had no problem however winning 100% interest at the auction. There is much less competition on the pricier tax liens, say $1,500 and upward.
Two Louisiana questions seem to be recurring that I may have some insight on. First, please note that this isn’t legal or tax advice, and I’m not qualified or licensed to give either.
AS TO RAY’S QUESTION ABOUT TAKING POSSESSION IMMEDIATELY:
Legally, you have no right to take possession by virtue of a tax lien. If a governmental entity orders you to physically do something (usually cut the grass or clear debris), then – and only then – you have the right to file a “Writ of Possession” with the Sheriff. Once that is filed, you have the right to take possession of the property in order to comply with the municipal/parish request.
Of course, may people like Ray have tax liens on property that seems to be abandoned. This is partly why Louisiana has reduced the redemption period on blighted properties in NOLA to 18 months. Some investors will take possession – regardless of their lack of any right to do so – if they don’t believe anyone will notice or care. These people will typically rent the property while waiting for the redemption period to end.
I personally find this highly unethical, but it happens nonetheless.
In Louisiana, anyone who physically possesses a property for one year – even if they blatantly stole it – gains the right to possess it. Once you have the right to possess, either from 1 year of open physical possession or a valid writ of possession, you are entitled to any revenues (pretty much rents) from the property and reimbursement for any improvements you make. However, be prepared for a real fight if the owner ever shows up, as a judge may be very unsympathetic to your cause.
GENERAL QUESTIONS ABOUT % OWNERSHIP
Whatever % of interest you purchase at the sale is what you will receive once you quiet title. Practically speaking, once you get clear title to less than 100% interest in a property you have to request a partition in court. This is a separate suit you must file after the quiet title action. Once the court orders a partition, the property will be sold by the sheriff at an auction just like any foreclosure. The proceeds from the sale will be divided up proportionally to ownership.
For example, if you have 1% on a property, and you clear title after the 3 year redemption period ends, you can demand a partition. If the property is sold for $100,000 at the Sheriff’s auction, you will get $1000 and $99,000 will be left to the original owner. You have also spent far more than $1000 in legal fees to get to this point. However, you can bid on the property at the auction like anyone else. If you win you will basically get a $1000 discount by paying yourself.
For obvious reasons, bidding 1% is a gamble that the owner will redeem. If you lose the gamble, you will likely lose all of it.
RANDOM NOTE:
The most important legal step to take is to make sure everyone with an interest in the property signs for certified mail giving them notice of the sale. Without that, it will be at least 10 years until you have insurable, merchantable title, even if there is a quiet title judgment.
this is a really helpful post, but what does it mean when you state that anyone who physically possesses property for 1 year gains a right of possession. if i purchase a tax lien on a property that was abandoned, but some other person has subsequently moved in for the past year — will i ever be in a position to quiet title (if the three years elapse) or even evict them?
The right to possess property is different from ownership or “quiet title.” If a person has acquired the “right to possess” they are entitled to the rents they receive from the property while they are in possession. However, their right to possess is inferior to that of the actual legal owner.
The bottom line: If you have a squatter who has been in possession of your property for more than a year when the redemptive period ends, you can lawfully evict them once you file a quiet title action. The possession won’t cause title issues until at least 10 years of uninterrupted possession. The only benefit the squatter got from having possession (up until you evict them) is that they get to keep any rents they received.
I am looking at this from a different point of view, but you may be able to supply some help.
I am buying a house with a lien (for grass fines, not taxes) and know that I can not pay the lien off untill the house is fully renovated. If no new fines are added (I will cut the grass) will they grow at a high rate of interest or stay steady? Is there a danger that while I am working on renovating the house (it will be a slow 8 month process) the house can be put for sale for unpaid fines (the ones I am not allowed to pay until the house is fully renovated).
The catch 22 is leaving me confused. Appreciate the help if you know.
If a property has code enforment judgements against it, through the courts does it change the 3 year waiting period to 18 months? Does anyone know a lawyer that would handle these types of cases? Or give me advice on which paper work I must file with the court to obtain full ownership of property?
A code enforcement judgement does not change the redemption period. You mat however correct the code violations and tai that amount on to the tax lien amount and earn interest on that amount as well while possibly increasing the redemption amount beyond the ability of the owners to redeem. The new laws passed in 2008 did cap that amount with an awfully low figure though, I think $2,500 or something like that which is unlikely to be enough to make repairs correcting a code enforcement judgement. Good luck!
Andy, all,
Thanks for all the details and it’s very helpful. My situation is little different.
The property I want to buy is not tax lien property but sherrif sale website mentioned . THE SHERIFF’S OFFICE DOES NOT GUARANTEE THE TITLE TO PROPERTY AUCTIONED. What’s this suppose to mean? Do I need to check all the properties that I am interesting to buy before the auction? How’s and this could be costly too. Please advise. Thanks.
Nancy
Hi Nancy. I am not sure what that means. If it is in New Orleans, you can always go downtown to mortgage and records on Poydras and do a little beginner abstracting. You can find out if there are any liens on the property that way. The folks that work in that office can help you with that.
I am not in New Orleans, but have 4 properties in Iberia parish through Tax Title Sale. My question is about Federal IncomeTaxes.
Can I claim the property taxes that I paid for in 2010 and 2011?
I believe that you can, however you should run this by your accountant.
Thanks for taking the time to discuss this, I really feel strongly about it and enjoy studying more on this subject.
Andy:
I purchased a mono pole and moveable equipment buildings during the 2008 tax sale and have paid all subsequent taxes. I recently learned that “moveable property” does not have the same 3 yr requirement as “Real property” and is sold w/o “Right of redemption”. La. R.S. 47:2142C
Is this correct and can I assume that I am the proud owner of a Pole?
Thanks, Bob
Property taxes apply only to the land and building, or “immovable’ property. And you own nothing but the tax title on the property until you successfully take title through the proper legal proceedings.
I am newly looking into tax liens in LA. Three years is quite a while to hold out. Do they get redeemed often? What do you think are the best investment strategies?
Thanks… your blog is great. thanks for posting it..
Hi Cindi,
They do get redeemed often. Use common sense, the greater the value of the property, the more likely it will be redeemed. One strategy I would steer clear of is buying tax liens on undesirable properties in undesirable locations, especially if you are taking less than 100% ownership.
I find SimCo’s post very confusing. It states that after 3 years, you do not actually own to the property and that the property goes to auction and you get the percentage that you bid on the lien, of the sale of the property? Also, during that 3 years, you have to keep up the property, I assume. Do you pay the taxes? I would suppose so. Then what happes with all that money that you have spent in the 3 years, keeping the property at code and paying the taxes. Must the property stay vacant that entire time? I suppose often the home owner may live there or a tenant. How is this properly dealt with?
Lots of questions! thanks for insight.
Great site. I, too, live next to a blighted property. It was adjudicated a Public Nuisance/Blight property on12/21/2012 and after a 30 day grace period daily fines have been assessed.
The record owner is long dead. The tax buyer from the 2008 tax sale has been squatting in it for 3 1/2 years. It is rat-infested, has holes in the roof, no walls on the sides and has been in a state of disrepair and decline for over 10 years.
The problem is that the fines against the house are not a real incentive for the tax buyer/squatter to repair. He has not paid any subsequent taxes on the house, now totaling over $25,000.00. I have checked each subsequent tax sale and the property has not been listed. How can that be?
That’s the city for you.