How Municipal Fines Will Ruin Your Tax Deed Profits

How Municipal Fines Will Ruin Your Tax Deed Profits

 

A good amount of the losses I see on properties that are taken all the way to the tax deed stage from a lien or are bought as tax deeds, actually come from the government.

Local governments – towns, cities and counties – have assumed a responsibility to their citizens to ensure their neighbor’s homes and yards are in good condition and not the cause of blight. They do this by enforcing the municipal code, aka ‘code enforcement’, about standards for things like the length of grass in a yard, broken windows, trash and debris in and around properties.

The municipalities may place fines and liens against the property in the hundreds, thousands and even tens of thousands of dollars.

Unfortunately for the tax lien and deed investor, these municipal liens survive the tax deed issuance.

These fines could have been placed on the property years before you were issued the tax deed and it sticks with the property. So, not only do you have to clean and repair the property, but you’ll also have to pay the fines levied against it owed by the former owner to the city seriously cutting into your tax deed profits.

To give one example, the City of Jacksonville, FL will place fines on properties they have to board windows on or secure for a couple thousand dollars. If those issues are not cleared up after a number of years and the fines paid, then they will slap another lien on the property – this time amounting to $150 to $250 per day!

I’ve seen some properties in that city with fines and liens totaling over $100,000 where the property itself is only worth $50,000.

Cities in Connecticut, New York and other states often put $100 per day fines for uncut grass and yard debris. Some cities in Indiana have even issued arrest warrants for negligent property owners.

I’m not advocating cities stop enforcing and using municipal fines to stop blight and eyesores; however, as a potential tax deed owner, you need to know that these fines due exist and you’ll be next up to owe them.

These liens can cross-attach to other properties that you own. So, for example, you may have five tax deeds under one limited liability company and if just one of those tax deed properties is subjected to a municipal fine, you will need to pay that fine if you sell any of the five properties that you own.

There are two solutions to this issue of surviving municipal liens and keeping your tax deed profits:

 First, avoid the issue altogether.

When you buy your tax lien or deed, make sure the property is in good condition – no broken windows, trash in the yard or tall grass that could raise the attention of local code enforcement.

Then, research the property by calling the city code enforcement office and asking if they have any issues with the property. Run a title report to see if any fines exist.

Second, understand whether or not you can negotiate the fines lower or even remove them altogether.

Most cities and towns just want to see their communities cleaned up and without complaints from neighbors – the fines are meant as a deterrent not a source of revenue.

If you know there are municipal fines and liens on the property, talk to the code enforcement office and ask them what it will take to remove them. They may have a policy that if the new owner takes care of the issues within a set amount of days, they will remove or substantially reduce them.

There is typically an application process where they want to see that the property is being repaired and maintained by the new tax deed owner. While it’s not a guarantee that they will remove the liens, you should get a pretty good feel if it’ll happen.

So, avoidance is usually the best route to take, but if you do your homework and find out what it takes to remove them, you may just be able to find a bargain as other investors have avoided homes with these fines.

 

 

 

 

 

Removing IRS Liens from Tax Lien Investments – Should You Worry?

Removing IRS Liens from Tax Lien Investments – Should You Worry?

I get a lot of questions and worry about Federal and IRS liens that could be on properties that our readers are purchasing at tax lien and tax deed sales. Or, I’ll get an email from a tax certificate holder who finds out that there is a large IRS lien on a property and think they’ve lost their investment.

I’ve found that IRS tax liens do not have to be as much of a concern as we make them out to be. And, I’ll discuss why shortly.

STOP!  If you’ve found this page because you’re looking for a TAX LIEN ATTORNEY to solve an IRS issue or Federal or State Tax problem, then click here for a directory of local attorneys in your state that can help you SOLVE your IRS/Government Lien Issue.

Find a qualified local TAX LIEN ATTORNEY in your state to help you NOW!

If you’re looking to hire a tax lien attorney to help you with your investment (tax lien certificate, tax deed, quiet title), then keep reading below!



But first, let’s talk about IRS liens:

  •  If a property owner fails to pay federal taxes and the IRS finds out about it, they will place a lien against the owner. This lien automatically attaches to any properties that the owner holds in their name.
  •  How does a property owner remove an IRS lien from their real estate? Three ways: they can pay it off, they can let it expire after 10 years, or they can negotiate with the IRS (you’ve seen the late night commercials, but I’ll show you how it works below).
  •  The IRS lien remains on the property unless one of the three ways discussed above happens. If you are issued a tax deed in a non-judicial foreclosure state, you’ll still have this IRS lien on your property.
  • IRS tax liens as with most state and federal liens, have priority over tax lien certificates. They must be dealt with or will have to be paid off if you are issued a deed.

However, in practice, these liens are typically wiped out thru a judicial process.

JUDICIAL FORECLOSURE STATES

If you’re investing in a judicial foreclosure state such as DC, MD or NJ, your attorney will follow a process that will remove IRS liens entirely if your foreclosure is successful. How will your attorney make this happen?

Per federal statutes, the lien holder must notify the IRS that they are foreclosing on a lien with a federal lien on it. Specifically, your attorney will send out a notice early on in the process (called a 25-day notice since the IRS has 25 days to respond) that seeks the IRS consent to take the property free of their IRS lien(s). Then, when the foreclosure is complete, your attorney will send another notice (called a 120-day notice since, again, they have 120 days to respond) that tells the IRS the foreclosure is final and they can redeem the property (aka “pay you off”), if they choose, within 120 days.

These statutes from the IRS can be found on their website (http://www.irs.gov/irm/part5/irm_05-012-004.html)

The IRS almost never takes actions on these properties. I’ve only heard of it once or twice and that was because the lien was a very large amount and the property had lots of value. If they do respond because there are tons of equity in the property, then that property will most likely redeem anyway by the homeowner or a mortgage company.

NON-JUDICIAL FORECLOSURE STATES

Non-judicial tax lien states (states that just issue you a deed with no legal foreclosure such as SC, AL, and FL) require an additional legal action called a quiet title action for removing IRS liens. I speak a lot about that here and here, but you’ll need to hire an attorney to file this and they will perform the same noticing.

I’ve also found that many of these liens were actually filed way in the past. Check your title work and you’ll probably find that the IRS lien was filed close or after their 10-year expiration period. You may be able to just wait it out until you reach this anniversary.

NEGOTIATING WITH THE IRS

In the rare case that the IRS lien wasn’t eliminated during your quiet title or judicial foreclosure, you can still negotiate to reduce the debt to ‘cents on the dollar’.

No, I don’t suggest you call those late night 800 numbers. You can do this just as easy yourself.

You’ll need to prove to the IRS that there is not sufficient equity in the property to payoff the lien if it is sold. The specifics can be found in IRS Code 6325 and involves filing a form found under Publication 783. Basically, you’ll need to provide a valuation of the property plus title work showing any outstanding liens superior to the IRS lien. You’ll submit the entire application to the regional IRS office who will review the details and come up with a settlement amount if it’s found that the IRS can’t be made whole.

Keep in mind, any settlement amount that the IRS gives you to discharge the debt is just the beginning of a negotiation. You can definitely argue your case to get your initial offer amount lowered. Just be able to provide facts–appraisals, real estate agent opinion of values, repair costs–that support your numbers. I’ve only been thru process once. It took about four months and I managed to get the lien discharged off the property for a number that still allowed me to make a profit on the property.

From the IRS perspective, if they don’t settle with you, they may be left with selling the property at a federal tax sale where the property will normally go for a bottom-of-the-barrel price at auction.

As alluded to earlier, IRS liens shouldn’t be a huge worry when you’re doing your due diligence before a tax auction or upon taking a tax deed. My focus is always on the property itself ensuring it is viable and I’ll get a redemption out of it as I’ve discussed elsewhere in my blog and in my e-books

What Everybody Ought to Know about Judicial Tax Lien Foreclosure

What Everybody Ought to Know about Judicial Tax Lien Foreclosure

STOP!  If you’ve found this page because you’re looking for a TAX LIEN ATTORNEY to solve an IRS issue or Federal or State Tax problem, then click here for a directory of local attorneys in your state that can help you SOLVE your IRS/Government Lien Issue.

Find a qualified local TAX LIEN ATTORNEY in your state to help you NOW!

If you’re looking to hire a tax lien attorney to help you with your investment (tax lien certificate, tax deed, quiet title), then keep reading below!

Several states especially in the mid-Atlantic and Northeast require a full judicial foreclosure in order for you to take deed to a property.  The largest of these states include New Jersey, Maryland and DC.

While the thought of hiring a tax lien attorney, going to court and paying the costs associated with the tax foreclosure can be daunting to new investors, it actually is a more definitive (more…)