Mitch Goldstein | Coach Mitch | July 3rd, 2017[Editor’s Note] Coach Mitch shows how buying specific tax liens can result in great profits, if you get to own the house for the taxes. Coach Mitch’s main strategy is to deal with the tax delinquent before they lose the property.
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Arizona owners can lose homes over as little as $50 in back taxes
The Republic | azcentral.com June 12, 2017
It was the home where Devoe Poleeson, the proud family cook and grill master, taught his daughter how to fry eggs. It was the home where he set the oven timer to awaken the kids for school before he left for work. And it was the family gathering place — for holiday parties, wedding receptions and even wakes — during the four decades he lived in the modest west Phoenix home.
The mortgage had long since been paid off. But in 2010, a decade after Poleeson’s death, an investor from Utah legally seized the home because a mere $808 in property taxes had gone unpaid.
“It was tragic for us, for our family, because … we grew up in that house and all of our memories are there,” said Patricia Miller, Poleeson’s daughter. “It was a loss that we just couldn’t really do anything about. There just wasn’t enough money from the insurance he had left to cover everything.”
The avalanche of foreclosures that devastated Arizona’s real estate market after the 2008 crash arose when thousands of homeowners were unable to pay their mortgages. But since then, other homeowners have faced their own foreclosure crisis, quietly losing their homes at a rate that didn’t peak until 2015.
“It was tragic for us, for our family, because … we grew up in that house and all of our memories are there.”
Tens of thousands of people were at risk of foreclosure in recent years after they fell behind on their property taxes. And, like Miller, hundreds of those people lost their homes, and all their equity — not to the bank or local government, but to private investors.
Homeowners who fall behind on tax bills by as little as Poleeson’s $808 — indeed, sometimes by $50 or less — can have their debt bought by other investors or banks. With what’s known as a “tax lien” on the property, those investors then have the right to collect not just the debt, but compounding interest, too.
If homeowners can’t pay the tax plus interest, they lose their homes and all the equity they’ve gained.
A review of more than six years of data on tax-lien foreclosures across Arizona shows most of the hundreds of thousands of property-tax liens in the state were paid off, sidestepping foreclosure. And a closer look at Maricopa County shows many tax-lien seizures involved vacant lots.
But of the cases that do lead to foreclosure — 1,734 in Maricopa County since 2010 — more than a third are primary residences. That means that 642 homeowners lost their homes and all their equity.
The data shows just how much can be lost:
• One investment LLC bought a tiny tax lien — $48.65 — on a faded fixer-upper in south Phoenix, then foreclosed and sold the house for $43,600.
• Another purchased a $1,390 tax lien on a house in north Glendale, then took the house in foreclosure and sold it for $210,500.
• In Maricopa County, high-poverty neighborhoods such as the Maryvale area, where Poleeson lived, have been disproportionately affected. Hardest hit are areas with large populations of Latinos and African-Americans, such as west Phoenix, south Phoenix and south Glendale.
“If you successfully foreclose, you normally find them … in socioeconomically depressed neighborhoods,” said Barry Becker, a prominent local attorney who has his own tax-lien investment company. “No one loses their house in Paradise Valley. Very few people lose their house in Scottsdale.”
See the entire story: Arizona owners can lose homes over as little as $50 in back taxes
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Coach Mitch’s REFLECTIONS™
I would like to speak about three issues in this article.
1. Some tax liens can be extraordinarily profitable.
2. The tone of the article.
3. That the penalty for not paying property taxes is not fair.
1. Tax Liens can be a great investment
All across the country, tax liens can be purchased that can potentially pay high interest rates or can potentially be a boon to the tax lien investor – if the owner does not redeem, i.e. pay the back taxes plus any interest and fees and you get the property for the price of the lien.
Tax liens can generate a significant payout. From New Jersey = 19% or Florida = 18% to Illinois = 36%, to Arizona = 16%, tax liens can make you rich – if you have a significant amount that you can invest.
Tax liens are a great passive investment
You buy this year’s tax lien, plus the next several years tax liens and just sit back and wait for the tax delinquent owner of the property to pay the back taxes and fees, all the while earning a great interest rate. Or, the tax delinquent will run out of time to pay, you foreclose and gain the property. That is the process.
Don’t forget, you will need to start with a significant sum of investing capital in order to buy three years of tax liens against a decent property. Example: taxes against a $250,000. home could range from $3,000 to $15,000 each year, depending of the level of taxes in that area of the country.
At $6,000 taxes per year for three years, you need $18000 available. Add the tax foreclosure legal fees and you are at $20,000. Plus, you will have waited three years plus the foreclosing time. If you get the $250,000 property for the $20,000 then it was a great deal.
You could buy a tax lien that is cheap
Some advocate to start by buying an inexpensive tax lien, e.g. $100. What kind of property would collateralize a $100 tax lien? That’s right – not a very good property. In fact, the owner may not even want the property and does not pay the taxes on purpose. He is happy that someone else (you) is going to be responsible for the taxes on the property.
Yet, if buying exactly the right $100 tax lien, then that lien could yield a big profit. There are many examples. But, it takes research.
Due Diligence = Finding Exceptions
Sometimes you do find a low priced tax lien that has great collateral. Coach Mitch has developed proprietary methods to locate these tax lien gems. When you do locate a tax lien gem, it is certainly worth the effort.
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2. The tone of the article
If you read only the first set of paragraphs in this long article, the tenor of the story is typical: the nasty real estate investor (rich is implied) is “stealing” the equity from the poor owner!
I’m getting tired of the “rich” being bashed
It has become PC, politically correct, to label certain groups as being nasty because they do something where some favored class is negatively impacted.
Landlords have long been a favored whipping boy. The rental laws have gone from: caveat emptor to caveat lessor, i.e we have gone from: “let the buyer beware” to “let the landlord beware.”
Now, the tax lien investor is getting the short stick by involving himself in a system that is legal and that benefits society. The tax lien investor provides needed tax monies to the taxing jurisdiction because the taxpayer did not.
Are you seeing the pattern?
Anti-American forces are acting in an entirely Un-American manner. They are constant attacking property ownership. It is apparent that their object is to undermine a fundamental American value, owning private property. The ultimate aim is to have all property either owned or controlled by the government. Being anti-property is a main tenant of all socialistic programs, whether fabian, egalitarian, communist or fascist.
Government creates the problem
Later in the article, the authors did allude to the idea that government has created the tax lien system as a method of collecting taxes.
“When a property owner falls behind on paying taxes, county treasurers place liens on properties with delinquent property taxes. If the taxes remain unpaid after two years, the treasurers auction off those liens to investors, who then pay the delinquent tax, recouping money the counties need.
Investors who bid on those liens buy the right to collect those taxes — with interest — and take the property if the owner will not or cannot pay within three years.”
Government’s tax lien “fix” creates more problems
Here, the government as the land-lord, orders the tenant, the tax delinquent property owner, to pay taxes and undergo a severe penalty if they do not pay. Government justifies the severe penalty and that justification is accepted because it is government.
A primary objection is that government has created this problem by creating a severe penalty. However, government does not want the negative publicity aimed at itself – so it uses the media to deflect attention onto real estate investors. This is a favorite tactic of the Miscreant Class – the current elite political class.
3. Tax foreclosure as a penalty is Unconstitutional
As a real estate investor teaching how to profit from a tax delinquent situation, it sounds hypocritical to oppose tax liens on property, however, I look at the philosophical basis underpinning the law. I find it lacking.
First: The Declaration of Independance dictates that the purpose of government is to bring to justice those who harm someone’s life, liberty or property.
Second: This means that government is required to defend someone’s life, liberty and property against any attack, including an attack from the government itself.
Third: It is obvious that by taxing property, and then taking that property if the taxes are not paid, that the government is NOT defending that person’s property, as is constitutionally required.
Fourth: In fact, it should also be obvious that the person never really owns their own property, if the government can take it away for so frivolous a reason as not paying taxes.
Fifth: The punishment for not paying property taxes is out of all proportion to the crime. The 8th Amendment’s standard is NOT to have: “…excessive fines imposed, nor cruel and unusual punishments inflicted.” The punishment is excessive and thereby cruel and inhuman, a violation of the 8th Amendment and Unconstitutional on its face.
Imagine any other situation where $50 is owed and if not paid, you lose $43600. How is that fair? It is not. It is cruel because the fine is excessive.
Adding salt to the tax lien wound
Where a tax delinquent has lost their property to tax foreclosure and where there are excess proceeds, i.e. the amount over the taxes owed, that excess amount is to go to the tax delinquent. After all, they lost the property, they should at least get the amount paid over the taxes.
However, I have found no taxing jurisdiction that does a significant effort at tracking down the previous owner, the tax delinquent, and forwarding to them the monies legally owed. State law may require that a notice be sent to the last address, but that address is usually the home that was lost, so the tax delinquent usually does not know that there are excess proceeds.
The county keeps the excess proceeds and makes it part of the General Fund. Of course government justifies this compounding of the original violation by saying that, “They followed the law.” Well, the law is an ass, and so are the Miscreant Political Class.
I’ve got to cool down and lower my blood pressure.
I think I’ll go look for a tax lien to buy!
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