How to Take Advantage of Real Estate Property Tax Liens

December 11, 2020

Getting a strong return on an investment can be a challenge these days. Interest rates are low, which means banks aren’t paying a lot to save money. Markets have been choppy due to COVID-19 and other factors. This has led savvy investors to look to other options for getting the best return on their invested dollars. One investment option that has been growing in popularity recently is tax liens. Investors that participate in these auctions have the opportunity to earn a much higher return on their investment than what they may be able to find with more traditional savings options. However, the rules and regulations around these sales can be complex and confusing to an investor looking into tax liens for the first time. In this article, we’ll take a closer look at what tax liens are, what investors in Illinois need to know about a tax lien auction before jumping in with both feet, and how Janus Title can help attorneys and real estate professionals better serve their clients in these complex transactions.

What is a Real Property Tax Lien?

Anyone familiar with property ownership understands that property taxes are an expected expense. Due to any number of situations that may arise, some property owners may fall behind on their taxes and become delinquent. The property owner is issued a tax lien on the title of their home, which means the lienholder has the right to collect on the debt. This is the starting point of a tax deed sale. A county will make attempts to collect the tax owed, but once their options have been exhausted, they will seek to sell the tax lien to investors that are interested in collecting on the debt plus interest. This process is done through a public auction which is typically conducted online. The rules can vary from county to county, but generally speaking, bidders will register with the county, attend the online auction, and then bid to take ownership of the tax lien and the right to collect the taxes owed. The county will start the bidding at the highest interest point, which is 18% every six months, then allow bidders to bid down the interest rate until the lowest remaining bidder wins. Once the process is complete, the winning bidder will pay the county for the delinquent tax amount and then gain the right to collect that amount, plus the determined interest rate, from the property owner.

How to Find Out About Real Property Tax Lien Sales

A tax lien auction isn’t exactly something that the average person marks in their calendar to be prepared for. Finding these public auctions can require some research and leg work as every county has a slightly different process for how they manage these types of sales. However, there are some general rules that every county must follow according to Illinois law when proceeding with a tax lien auction. First, all tax deed sales must be advertised in the local newspaper. This allows the general public to be aware of upcoming properties is generally the last-ditch attempt by the county to collect on the tax. In some cases, the property owner may have been unaware that tax was owed and missed previous communications from the county. This notice allows them to pay off the amount owed before the auction even begins. Public Notice Illinois is a website that allows people to search public notices from various publications throughout the state and filter by a certain set of parameters. This can be a valuable tool for learning about upcoming tax deed auctions. In addition, many counties will also post upcoming public auction information on the county website. As you can see, there are several tools for learning more about these upcoming auctions. However, searching many publications and county websites can be a time-consuming process. Generally, investors will want to identify the counties that they’re looking at purchasing tax deeds in and target their searches to the specific counties they are looking at.

Tax Deed Auction Opportunities

There are a number of opportunities for investors with some available cash flow to make the most of tax deed liens. Perhaps the most obvious opportunity is the ability to earn a significant interest rate much higher than what traditional banks and savings accounts are offering. This is especially true in such a low-rate environment as we are seeing right now. With the ability to earn up to 36% annually in interest on a tax deed, investors could see significant returns that can really only be matched by higher risk traditional investment options like speculative stocks, for example. Investors can also use the public auction process to determine the rate they would be willing to accept for their investment. If the bidding gets too low, then the investor can simply walk away and look for another opportunity. Some counties require a registration fee for their auctions but often refund the fee if no purchase is made. There aren’t many investment opportunities that offer the ability to name your price, so to speak. Finally, tax deeds offer investors a legal right to the property in the event that the property owner doesn’t pay off the tax owing. Illinois law allows property owners anywhere from two to three years to pay off the taxes. After the prescribed timeline has passed, the owner of the tax deed can foreclose on the property and take ownership to sell, rent, or develop.

The Risks of Tax Lien Sales

As with any investment, there are some risks to tax deed sales that must be considered. Opportunity cost is one of the most significant risks. Investors essentially have to pay off the taxes and have their money tied up while they wait to collect or take ownership of the property. As mentioned, this can be up to a three-year process. During that time, the money can’t be used for another investment. There is also the risk that the amount owed is paid off quickly, amounting to little interest earned. However, the investor would have paid for the tax lien, paid the registration fee to participate in the auction, as well as their investment of time and any other associated costs.

The Role of Janus Title

Janus Title plays an important role in the process for tax deed investors. Our cloud-based Qualia Connect platform allows for rapid and efficient ordering of titles. This makes research and closing on deals quick and easy for investors looking for the right opportunity. And with the Janus Turnaround, we offer faster turnaround than anyone else in the business. Of course, time is money when it comes to investing. To learn more about how Janus Title can become your trusted partner in tax liens and deeds, contact us today.


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