Finding Opportunities With Tax Lien Lenders

When you are starting out in the world of real estate investing, it can be a challenge to sift through the abundance of information available to a new investor. Heck it can even overwhelm a seasoned investor as well.  You are bombarded with facts, strategies, testimonials, and lots of advice that probably lead to more questions than answers. 
 
 
Two questions I hear often from new investors I meet at real estate meet-up groups are which investment strategy is best to get started, and what is the best source to find good deals. The best answer I’ve heard from a very seasoned local investor was to first choose whether today- money or tomorrow-money is most important to you. The second question is more difficult to answer. It is the focus of many best-selling books and the reason why gurus sell expensive courses.  I’m not here to solve that big second question today.  Instead, I can tell you about a recent experience where I used a common strategy, an assignment contract, but found the property from an uncommon source. 
 
 
If you are not familiar with the term assignment contract or wholesaling, it is a very common today-money strategy to tie up a property and assign your equitable interest in the property to another investor. Many new investors use this strategy to contract a property because it requires very little money down, and because they do not intend to acquire the property themselves. The equitable interest in the property, by means of the contract, has value and the wholesaler earns a fee for the assignment.
 
 
I recently had the opportunity to wholesale a property in Fort Worth from a unique source, a property tax lien lender. If you are not familiar with tax lien lenders, they are unique to Texas, Virginia and Nevada. In Texas, the lender is allowed to loan money to the property owner in order to pay delinquent property taxes. In exchange, the lender takes a first lien position on the property, called a transfer tax lien, which supersedes any other liens on that property. That’s right, a Super Lien!  It’s a great way for a property owner to take control of their finances if they have a shortfall in their budget, and are unable to pay their property taxes. However, it can also prove risky to the property owner as the lender can foreclose if payments to the lender become excessively delinquent. Like mortgage companies, these lenders are not in the business of foreclosure, they are in the business of lending money. But like mortgage companies, they do foreclose on property owners. Where there is a foreclosure there is opportunity for investors like me and you.
 
 
There are many complexities of the tax lien laws in the Texas Tax Code that I will leave for another blog post. However, for context it helps to understand that a tax lien lender in Texas can foreclose a property through non-judicial processes quickly. Then offers to sell the property at a county property tax auction, subject to 6- month or 2-year redemption period, depending on the property owner’s exemption status. If the property does not sell at the auction, the lender takes the property back and adds it to its inventory of struck-off properties. This is where I found my opportunity. The lender foreclosed on a property, it didn’t sell at auction, the lender took it back and added it to their portfolio of REOs. 
 
 
Its important to note that struck-off tax lien foreclosed properties can often present a challenge to an investor. The most common thought investors ponder is that the property didn’t sell at an auction for a reason, so it’s not worth the trouble. Perhaps its is very bad shape and the cost of repairs exceeds its value. Perhaps the redemption period is not suitable for their investment strategy, or there are unresolved title issues.  I chose to overlook those challenges and decided to take a chance and look deeper at the property. 
 
 
The property answered yes to all the common challenges. Yes, it required work. However, upon closer look, the property is on almost one acre of land and within two miles of a popular lake.  It’s also true the property has a 6-month redemption period after foreclosure. However, I learned from the lender they foreclosed several months ago, therefore the redemption period is soon to expire. Even if the property is redeemed during the 6-month period, a 25% return on the investment is a win for most investors. Furthermore, I considered the likelihood of a redemption from the original property owner as unlikely, given they did not have the funds to pay the original bill. To further complicate matters the improvement on the property is a manufactured home. Many investors dismiss these types of properties. My gut tells me this was the main reason it didn’t sell at auction. But the detail that other investors missed is that the improvement was not recorded as “real” property with the Texas Department of Housing and Community Affairs. The improvement is considered personal property and not part of the land it sits on. The previous property owner left the property, and it would be very difficult for the previous property owner to claim a homestead two year right of redemption given the years of delinquent tax liens on record. I realized the right investor would have the choice of strategies on the large lot.  He or she could keep the existing improvement, add an additional improvement, or replace with a new improvement. 
 
 
Immediately after offering an assignment contract to the lender, I began to search within my network for a buyer. I found an investor through a referral from another wholesaler. Within a few days, we viewed the property twice and he decided to make an offer. As of the date of this article, title abstract has been initiated and no serious issues were found. I am eagerly awaiting closing on the assignment the first week in September. 
 
 
There are many ways to find real estate deals. I’m navigating my way through the sea of information just like you. With a little creativity and willingness to look for opportunities where others overlooked, you might find your next deal too.

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