What Everybody Ought to Know about Judicial Tax Lien Foreclosure

What Everybody Ought to Know about Judicial Tax Lien Foreclosure
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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 legal process than other states that simply issue you a tax deed at the end of the redemption period for several reasons.

 At the end of the legal process, you have a free and clear legal title to the property.  This means that you can sell the property to anyone with title insurance and no threat of the deed being overturned.

 The costs of your tax lien attorney are recoverable if the property redeems.  These costs are usually set by the state tax lien statutes or defined as “reasonable”, but you should be able to get most of your out-of-pockets costs back.

 Your tax lien attorney is working for you, you’re not relying on the county to do the process correctly.  Most of my losses and legal headaches happened because of bad noticing in non-judicial foreclosure states.  Having your own attorney means that those mistakes shouldn’t happen.

The first step to take before attending the tax lien auction in one of these judicial tax lien foreclosure states, is to research the timeline looking for legal deadlines of when you must file the tax lien foreclosure.  For example, in Maryland, you must file your foreclosure between six months and two years after the sale date, or your lien will expire worthless (see Tax-Property Article of the Annotated Code of Maryland, Section 14-833)Make sure you initiate these actions with your tax lien attorney a couple months before the deadline, it can take a few weeks or a month just to get the title work back. 

Although the legal terms and timing can vary state-by-state, here’s what generally you can expect in any tax lien foreclosure:

Hire a Tax Lien Attorney.  Finding the right attorney is important.  They should have experience in tax lien foreclosures.  Most tax lien attorneys file tens or hundreds of foreclosures a year.  This is who you want to hire.  They will either charge you an upfront cost ($1,000-$2,500) to begin the process or charge hourly at rates of $150-300.  Remember that most of these costs will be recovered if the lien redeems and that they often have paralegals who handle a lot of the work for less cost.

Order Title. It is very important that your attorney knows everyone that may have an interest in the property because each of these individuals must be legally notified that the foreclosure is taking place.  These title reports are run thru third-party companies at a cost of $150-$300 and can take several weeks to complete.

File Tax Lien Foreclosure Case and Notify All Interested Parties. Your attorney will then file the case with the court and notice everyone with a legal interest in the property that was found thru the title report.  Often times, they will hire a ‘process server’ who specializes in finding people and companies.  Worse case, if someone can’t be found, your attorney will publish a notice in the newspaper for a set number of weeks.

Default Judgment. You might be lucky.  No one comes forward to contest your case or answer a notice.  If this is the case, your tax lien attorney will go to the judge and ask for a final judgment giving you the property based on the fact there was no one to contest the foreclosure or pay the taxes.  This might take six months or so depending on how backed up the courts are.

Summary Judgment. If one or more parties do come forward to answer your complaint, you’ll seek a summary judgment from the court.  Your attorney will offer evidence that the lien was issued appropriately and answer any challenges to your foreclosure.  If everything was done correctly, the judge will rule in your favor.  Otherwise, the defendants (those interested parties) will either pay the taxes or (rarely) the tax lien will be found invalid and you’ll get a refund of your investment plus some small amount of interest.  This whole process can take six months to a couple of years depending on the court system.

Tax Deed.  After receiving your final judgment, the property is basically yours.  However, in some states and the District of Columbia, you’ll need to take your final judgment to the tax collector and have the tax deed recorded in your name.  You may need to pay for any municipal liens or outstanding taxes at that point.  Also, you’ll need to finalize your bill from your tax lien attorney for any costs over and above what you already paid.

Have a question about property tax foreclosures or want to share a tax foreclosure story? Post it on my Facebook Page.  One of our readers or I can answer it for you or at least find a good resource for you.  Or, subscribe to my free Tax Lien Newsletter and reply to the email address it’s sent from.  I answer all of my emails from subscribers!

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