DeedGrabber Mini Course Day 3
"Who Would Sell Their Property For $200?!?!??"
On Day 1, we discussed why tax lien sales and tax deed sales are imperfect ways to get tax properties, though occasional bargains do happen.
On Day 2, we talked about contacting the owners of property in tax sale, so we could get ownership now and avoid bidding if the owner wanted or needed to get rid of the property.
But we got a little ahead of ourselves. How do we find out who is about to lose their property? And what do we say to them? Why on earth would they sell their property for $200 or less?
No matter how your state's delinquent tax system is set up, all states have one thing in common: If an owner doesn't pay taxes long enough, they will lose their property eventually.
Maybe there will be a tax deed auction after taxes aren't paid for 2 years. Maybe after 1 year of delinquency, the state will sell a lien against the property and the owner will have 1 additional year to pay off the investor before losing the property.
Notice that, regardless of the system, there will be a "drop dead date" by which the owner must pay the taxes to avoid loss of their property. You just have to figure out what that date is.
Find the "Drop Dead Date"
In the case of a tax deed state, the tax deed sale date is usually the "drop dead date". Some states have a "redeemable deed" sale, where the owner gets an extra time period to redeem after the sale occurs. No problem, just add that period to the date of the sale, and you have your "drop dead date".
In redeemable deed states, it doesn't hurt to contact the owner prior to the sale either.
If your state sells tax liens against property, there will be a certain time period during which the owner can redeem after the lien is sold. If that time period is two years, add two years from the date of the lien sale and you'll have your drop dead date.
In my state, each county has a yearly tax sale, and sells a lien against delinquent property. That lien must be paid within 1 year or the owner loses the property to the investor.
So, I just go to the courthouse and look at the last sale that was already conducted. I know the owner must pay within 1 year, so I add 1 year from the date of the lien sale and I know when their "drop dead date" is.
I access the results of the sale to see which properties had liens sold against them. Then I see who has paid those liens off in the meantime, and cross them off the list.
This leaves me with a concentrated list of owners who still have a lien against their property. They're still facing a deadline to pay, coming soon, and they will lose their property if they don't follow through.
It's always exciting when you get your list and narrow it down to the owners who are still in trouble with their taxes. There are almost always owners who have walked away from their property and are just waiting for your letter or call, and want to practically give their property away!
Now it's time to contact the owners about to lose their property.
The Four "Owner Types"
Interestingly, each owner we contact will fall into four rough groups. It is very helpful to learn the profile of each group so we can make the right offer, and not waste time. Let's discuss that now:
GROUP 1 - THE PROCRASTINATOR
This owner can and will pay his taxes. Or maybe he already has paid since you last updated your records. He will tell you that he paid, or is planning to pay. For some reason, he is just taking a silly risk by allowing his property to get this far into the process. I usually check up as the deadline approaches to see if he really does pay.
GROUP 2 - CAN'T PAY, WANTS TO KEEP THE HOUSE
This is a somewhat common situation. The owner most likely lives in the house, and doesn't want to lose their home. Many of these owners are looking for a loan, which I do not recommend you do under any circumstances. You may want to buy the home and give the owner a chance to buy back or rent.
Many state laws are getting tighter about "rescuing" homeowners from losing their home and allowing them to stay. For this reason I am very careful when I allow a homeowner to stay in the house when I buy it.
GROUP 3 - WANTS TO SELL THE HOUSE
You'll also find many absentee owners who just want to sell the property. The prospect of losing all equity in the house will inspire a lot of owners to "cut and run" by selling cheaply to you.
GROUP 4 - DOESN'T WANT THE PROPERTY AT ALL
These are the owners we really love! You will constantly be surprised at properties that owners will walk away from. Many are inherited properties with out of state heirs.
In other cases the owner has accepted the fact that he will lose the property and has stopped thinking about it. Owners in this situation will tell you straight up that they don't want to pay the taxes and are just letting the property go. We will often get deeds to these properties for $100 or less.
Why Would They Take So Little?
The important thing to understand is these owners don't take $100 "for their property". They've already let the property go in their own mind, and are taking $100 as a token payment for their time in signing it over to you so you can see if you can do anything with it (sometimes you can't do anything with it!!). They just don't care about the property.
Is it hard to understand this last group? It was for me at first, until I started doing a lot of deals. Here are a few scenarios I've actually encountered that will give you a better idea of why an owner would walk away for $200 or less:
1. They bought land to build a future house many years ago. They've been paying taxes on it for years or decades with no return. Their plans have changed, or their financial situation has taken a turn for the worse. They just want to quit having to pay the taxes and they have done so. They're ready to put the experience behind them and will sign it over for enough money to have a decent meal out.
2. They grew up poor, moved away, and bettered their situation. Now they ended up with Mom's house after she passed away, which needs tons of repairs and is only worth $20,000. They don't have the time or inclination to deal with it from hundreds of miles away. They think they'll have to spend money on repairs and deal with contractors. The tax bill is $4,000. They're just letting it go.
3. They're irresponsible, and never did anything with the property they inherited from Mom. After living in it for a while, the repairs and tax bills started mounting, and they moved out. They don't have any way to redeem it and could use a few hundred bucks.
I could probably write 10 more scenarios like this, but I hope you understand how a small percentage of people get into these situations and the end result is the upcoming tax sale of their house. And, why they have not done anything about it.
Next time we'll talk about how we contact the owner, and how we negotiate based on which group the owner falls in.
Tomorrow's lesson is called:
"What Do I Say to the Owners?"Sincerely,
Everything You Need to Know to Profit From
Tax Property Before the Sale -
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