Could your Tax Lien Certificate be a SALE IN ERROR?

Could your Tax Lien Certificate be a SALE IN ERROR?
  • Share
  • SumoMe
  • Share

Like most real estate investments, tax liens and tax lien certificates are sold “caveat emptor”, that is, there are no warranties, representations or guaranties of the value of your investment. This is especially true with tax liens as the courts have held time-and-time again that the investor bears all of the risks of the investment.  Additionally, the county tax collector or treasurer has no stake in purchase—they don’t care if you make or lose money—all they want is your cash so they can pay their county bills.

However, there are times when mistakes are made and will entitle you to a refund. These mistakes are called “sales-in-error”.

The chances that you receive a refund vary by state as does the amount of interest you will receive (if any). For example in South Carolina, if a “sale-in-error” is declared on your lien during the redemption period, you will only receive your investment plus the county’s cost of funds—generally the money market rate that the county receives on its own cash.  In Illinois, you would receive 5% and so on.  Because of these low rates, you should try to identify sales-in-error yourself early on in the life of the tax lien certificate.

What constitutes a sale-in-error on a tax lien certificate?

Selling a tax lien on an incorrect or redeemed parcel.  Tax collectors are pretty good at catching these but errors do happen.  You can catch these yourself by checking the tax records on the parcels you are interested in buying.

Incorrect Assessments. Not all states allow you to claim these as sales-in-error; but, if the county tax assessor makes a substantial error on their assessment, you can seek a refund.  For example, if the assessor indicated a parcel was improved, commercial structure but it turns out that it was truly vacant land with zoning making it unbuildable, you may have the right to seek a refund.  This also could happen when the tax assessor splits an improved parcel right in the middle of a structure.  I’ve seen it where a residential house sat on two parcels, but only one tax lien was sold. 

Invalid Noticing.  In those states where the counties do their own public notices for sold delinquent taxes (Florida, South Carolina, etc), it may come to light that the county did not send out the correct notices to the taxpayer or other interested parties.  This is normally found by taxpayers who finds themselves about to lose his or her home but can show that they were not told by the county of their delinquency.

Tax Exempt Parcels. If you buy a lien on a church or government-owned parcel, you will probably find out that the property owner was exempt from paying property taxes.  In this case, you will have a sale in error.  This is not always the case as some churches are required to renew their tax exempt status annually.  Should this happen, your tax lien may still be valid.

Occasionally, the county treasurer will try to declare a sale-in-error on your tax lien certificate when you really don’t want it to happen.  For example, you have a well-secured lien earning 18% for the past two years and suddenly you get notice that they lien has been invalidate and all you receive is a return of your principal plus a little bit of interest.   While it’s tough to fight, it is your right to make the tax collector prove their case and show you, in writing, why the tax lien was invalidated.  95% of the time, they are statutorily correct, but if you feel they declared the lien invalid for a reason that’s not clear-cut, it may be worth hiring a tax lien attorney to litigate the issue (if the lost interest amount is higher that the attorney fees).

Leave a Reply