Tax Lien Investments: Online and Mail-In-Place Investments

One of the questions I often get from visitors to my website is, “Can I invest in tax lien certificates online or by mail?” Many people want to invest in tax certificates but don’t have the time to physically attend a tax sale, so they want to do it online or by mail. A few tax lien states do have tax lien sales online, and some will allow you to mail in your application. However, I do not recommend investing in tax certificates by mail or online unless you can inspect the properties or have someone inspect them for you.

First, let’s talk about online sales tax. As tax lien investing has become more popular among ordinary people (it’s no longer just a secret of the wealthy), it has also become more competitive. Over the last three or four years, in the states where the interest rate is reduced, the rates have been going lower and lower – in some countries, up to 25%. And in states where the amount of bail is increasing, the prices are rising higher and higher. Online auctions increase competition even more. Now instead of bidding against every interested party that might come up for sale, you compete against every interested party with a computer.

Three things happen at these online tax sales. First of all, there are a lot more bidders because all they have to do is go to their computer to register to sell. Second, tax certificates offer more money or lower interest rates because the number of bidders increases. And third, more properties are sold at these sales. You see, most tax sales have “leftover” liens that no one bids on that go to the county. Many of these objects are unwanted. They are really worthless, and so the owner stopped paying taxes. All bidders who have done their due diligence will be aware of this and will not bid on this property. But when sales are conducted online, these properties are usually sold. Don’t be one of those online bidders buying a tax lien on a worthless property!

Would you buy a property without looking at it first? Although you don’t buy property when you buy a lien (you only pay back taxes and penalties and put a lien on the property), you still need to make sure the property has value. There is always the possibility that the deposit will not be repaid and that you will be left with the property. And if you do have to foreclose on the property, you want it to be worth a lot more than what you put into it. Your investment is not only the amount you paid at the time of sale, but also any subsequent taxes you paid, any court fees and foreclosure costs, and any costs you incurred to repair the property before you sold it.

Here are some other things to consider if you decide to go ahead and get your tax lien certificates online anyway. You will pay more money for tax certificates online than for a regular tax sale. First of all, you will need to put down a large deposit just to register for the sale. If you do not purchase a lien, your deposit will be returned. When you make a purchase, the money will be withdrawn from your deposit. Even if you make a purchase by mistake, the money will be withdrawn and not returned. If you do not complete the transaction, you may be barred from any future sales. In addition to this, you will need to pay the online auction company a commission which can be as high as 10% of the price of the collateral(s) you are buying.

How about buying tax lien certificates by mail? Many states allow you to purchase tax certificates by mail. Most states allow this for their “residual” liens, and a few states will even allow tax sale applications to be mailed in. Purchasing tax lien certificates by mail doesn’t have all the problems I’ve described for online tax sales, especially if you can do your due diligence on the property before bidding. However, you are at a disadvantage when you mail in your tax sale application. I suggest you find out what the procedure is for a sale. If your bid is read aloud during the sale and those present at the sale have an opportunity to bid you, you are at a disadvantage. It is the investors who are present at the sale who have an advantage over you.

Some states have facilities that sell lien balances (sometimes called “OTC” liens or “step-up” liens) that can be purchased by mail order. However, be very careful to do your due diligence on these properties before bidding. Very often, as I mentioned earlier, there is a reason that these collaterals have not been purchased by other investors. If no one else wanted it, there might be something wrong with it! Check the property before you buy. Investing in a tax deposit is non-refundable!

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