Louisiana Tax Liens

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Louisiana tax lien auctionThe Louisiana tax lien market for investors is improving.  In the past, it has been a source of frustration for those looking to buy tax liens because of the system of bidding down ownership at the tax auction and the high percentage relative to other states of sales made in error.  The major tax lien auction company in Louisiana (Archon Information Systems) is leading a push to change the tax  lien statutes with Act 819.  If successful, it should change the auctions from its current system to one where the 5% penalty rate is bid down to the lowest bidder or the first bidder who reaches zero percent (keep in mind, that does not eliminate the 1% per month interest rate).  The statute will also keep the property in the name of the owner until the redemption period expires–adding protections to the tax lien holder.

Advantages of Buying Louisiana Tax Liens

  1. Noticing – The noticing process is handled by each parish, not the investor keeping lien administration easy.
  2. Possession Rights – After three years, the property is yours.  No applying for deed necessary.  In fact, you could even take possession of the property earlier if you can show a court that the owner is not taking care of violations.  Keep in mind, to confirm title so you can sell the property, you would need to file a quiet title action.
  3. Potential Gains – With the low tax rate, your basis should be low compared to the value of the property even after three years.  You can use this to workout settlements for a gain with the former owners or take and sell the property.

Disadvantages of Buying Louisiana Tax Liens

  1. Redemption Period – Three years is a long time to wait.  Couple that with the slow economy of Louisiana and you get one of the slowest rate of redemptions compared to any other state.
  2. Nullifications – With the local parishes (usually the sheriff office) doing the noticing and selling of tax liens, you’ll see alot of nullifications (sale in errors) that will result in only a return of your investment with no interest.
  3. Interest rate – Once the law changes, you’ll see most of the penalties disappear leaving only a 12% statutory rate.  This is low compared to other states.  Keep in mind, however, you won’t earn less than this rate as you can in interest bid-down states.

The Louisiana Tax Lien Auction

I’ll discuss briefly the bid-down ownership auction and hope the law really does change in 2013. In this type of auction, the bidding starts at 100% ownership.  The auctioneer then opens the bidding to investors willing to buy less than 100% of a lien on the property all the way down to 1%.  This means that if you get to the three-year point and the property hasn’t redeemed, you’ll need to file a court action to force a sale of the property and get everyone paid out.  For years, most of the properties just weren’t bid down; however, the past few years have seen more competition actually willing to buy liens even down to 1%.

The Louisiana tax lien auctions are normally held between April and August of each year.

Louisiana Subsequent Taxes

Louisiana subsequent taxes are easy to buy and as a tax lien owner, you have the right to buy them.  They also earn 12% but do not earn a penalty.  I recommend buying them since it will protect your interest from other tax lien holders who could wipe out your interest if you were to wait four years or more to take action on a property.

You can purchase these subsequent taxes simply by confirming the amounts with the taxing authority (sheriff’s office) and sending in funds to pay those taxes.  I would absolutely make it clear that the amount you are sending in is for subsequent taxes (and not paying off the taxes), also make sure the taxes aren’t already redeemed as it’s a pain to get the money back once the parish has received it.

Louisiana Quiet Title

So, your three years have passed with no payoff.  If you want to ensure no one can challenge this tax sale (and to provide title insurance to a buyer), you’ll want to file a motion to quiet title.  You’ll hire a Louisiana tax lien attorney who will notice all parties on title and after a six-month or longer process, request a judge confirms title (ownership) in your name.  You can see my article about hiring a Louisiana tax lien attorney and filing quiet title.



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