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Tax
Sales, Tax Certificates, Tax Deeds: Due Diligence Matter |
We have all heard the infomercial and the
Internet claims regarding tax foreclosed property:
You
will own the property FREE and CLEAR!
All other liens and
interests are WIPED OUT!
You will hold the FIRST PRIORITY
security interest!
The Government Guarantees these
properties!
All liens, interests, and encumbrances are
ERASED!
You can do this part-time with nothing down!
You don't need to set up a company just get out there and make a
deal!
While this can make great marketing material it is
not in accord with the reality of tax foreclosure purchases. As an
attorney, I learned in law school that every rule of law has an
exception. Knowing how these exceptions work will mean the
difference between success and failure as a real estate investor on
the grandest of scales! I don't make that statement lightly, rather
I make it with as much of the emphasis and weight that the English
language will allow. Please read it again, ?Knowing how these
exceptions work will mean the difference between success and failure
as a real estate investor on the grandest of scales! If you intend
to be successful you must be able to separate marketing fluff from
well researched and analyzed fact. If you rely on marketing
materials and hype your failure is nearly certain, however if you
rely on well researched information formulated into a methodology
then the keys to success in any endeavor are in your hands.
What Does This Mean to Me and Why Should I Care?
What this
means is that you must forget about blanket marketing statements
when dealing with tax foreclosed property. For every statement that
is contained in the bulleted list (at the top of the page) there is
an exception and just like any business what you don't know WILL
hurt you. If you have contacted me by email or purchased one of my
courses you know that I absolutely believe in covering all the
positive and negative aspects of investment techniques. This does
not mean focusing ONLY on the benefits or making wild claims about
investment techniques. It DOES mean thoroughly covering what could
go wrong and a relentless approach to risk reduction.
In
the following sections we will review some of the areas that you
must consider when researching and evaluating tax sale properties. I
call them due diligence areas #1 through #5. These are not an
exhaustive list but they do set out some of the areas which are
typically left out of most peoples analysis. For a complete list
please review my course materials.
Due Diligence Area # 1:
What Liens Will Survive Foreclosure?
One area that really
upsets me is when I hear a general rule of law blindly applied to
every tax foreclosure situation with reckless abandon. Whenever you
hear that the foreclosure of a tax lien ?wipes out all over liens or
that the property is now free and clear of all other liens a
general rule has been overstated. The general rule can be found in
the property code of every state and the UCC (Uniform Commercial
Code) which covers commercial transactions. The general rule can be
stated as: The foreclosure of the superior lien will eliminate the
rights of any junior interests in the realty or personal property.
This general legal rule stands for the proposition that: that when a
superior lien (one that was recorded or perfected before all
others) is foreclosed (i.e., through the states legal foreclosure
guidelines) any junior interests will lose their interest in the
property. Remember that there are exceptions to this general rule.
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