Q: How do I acquire a tax lien certificate?
A: There are three ways to acquire a tax lien.
1. At public auction.
2. Through an assignment from a private investor.
3. By an assignment from a municipality that is rarely achieved and is a complicated procedure.
Q: What bidding system is used at New Jersey's tax sale auctions?
A: Bids begin with 18% yearly interest given to tax lien holders, however, auction attendees who are eager to become tax lien holders of a certain property may bid down from 18% until 0% and then even add a premium upon that to achieve the tax lien certificate.
Q: What is a premium?
A: In the event of a certificate having got bid down to 0%, bidders can bid a premium on top of the certificate amount. However, no interest is earned on the premium.
Q: Is the premium refunded at redemption?
A: In the event the property owner redeems the certificate within five years from the date of the auction it gets refunded. However, any premium paid to the investor at the assignment shall not be refunded, but will have to be regained from interest.
Q: If interest was bid down to 0%, does the certificate earn interest?
A: According to New Jersey Law, on liens over $200, a penalty of 2% is added to the certificate, liens over $5,000 bring a 4% penalty and liens over $10,000, a 6% penalty is added, regardless of interest bid. Some municipalities include an additional 6% year end penalty on liens over $10,000 and could raise the penalty to 12%.
Q: What's the difference between the 2% 4% 6% and 12% penalty and the interest rate bid on the certificate?
A: The one-time penalty bonus is the same amount whether it is redeemed one day after the auction or five years after the auction, unlike interest bids which earns 18% annually.
Q: Are there any differences between buying at a public auction versus buying from an assignment?
A: Though the actual certificate is the same, buying at auctions and getting a good deal can be difficult.
1. You might get outbid after spending so much time on research.
2. Many parcels listed in the tax sale list never get auctioned off.
3. Because New Jersey has 566 municipalities. This means there are 566 auctions scattered around the state, making it unfeasible to get to the auctions.
4. Many municipalities auction off just one parcel and many auctions are held simultaneously.
5. You will also have to wait a full two years before you can begin the foreclosure process.
6. If the tax lien certificate was bid down to 0% and the certificate gets redeemed in the first year, you make a small profit.
When you buy through an assignment:
1. Certificates may already be earning 10% to 20% or more.
2. You are able to calmly buy in an unhurried and pressure-free atmosphere versus that of an auction.
3. In almost all cases comprehensive research yield results, because nearly all certificates listed are sold.
4. If your certificate is two years old, the foreclosure process can begin immediately.
To view available Assignments, click here.
Q: How will the tax collector know of the assignment?
A: You must send a copy of the assignment form via certified mail return service requested to the tax collector.
Q: Are there any benefits to buying at the auction?
A: If you buy at an auction, any premium bid on the certificate will be refunded at redemption within five years of the auction. When buying through an assignment, premiums paid will not be refunded, but will have to be earned back from interest.
Q: I own a certificate-now what?
A: Regardless of how a certificate was acquired, it must be recorded in the county clerk's office. A certificate that is not recorded is worthless.
To let the TaxlienBrokers.com record it for you, click here.
Q: After I own a certificate, do I have to pay any municipal charges like tax or water?
A: No, you are not obligated to pay anything, but it is in your best interest to pay future municipal charges that accumulate on the property. This is known as subsequent payments. You also have the option of buying next year's tax sale certificate at any upcoming tax sale auction. Subsequent payments are especially important if you are earning low interest or put on a premium. The more you pay, the more interest you make!
Q: How can I be certain that subsequent payments get added to the certificate?
A: When you make a payment, it is imperative to file an affidavit stating that you have made a payment toward the certificate. Some municipalities require the affidavit to be notarized. Failure to send an affidavit with payment will pay off taxes without adding it to your certificate, and you will fail to receive the payment you made when the certificate redeems.
To see a sample, click here.
Q: What interest rate do I get on the subsequent taxes paid?
A: You get a full 18%.
Q: How will I be able to get next year's certificate and avoid being outbid?
A: If you own a tax lien certificate, merely go to the next year's tax sale and upon hearing your parcel being auctioned off, say "prior 18%" and no one will outbid you. The reason for this is that if you own last year's certificate, and you get outbid, you can opt to promptly pay off the new certificate, and it leave the owner of the new certificate with no profit..
Q: How can I make money if interest was bid down to 0% and there is a premium on the certificate?
A: Suppose you bought a $5,000 tax certificate, bid down the interest to 0%, put on a premium of $2,000, which gives you a payment of $7,000. If the lien gets redeemed any time in the first year, you get at redemption $7,200.
($5,000 certificate amount x 4% penalty=$200 ($5,200)
$5,200 + $2,000 premium = $7,200)
Assume, the following year, you pay subsequent taxes that earns 18%, and the certificate redeems at the end of that year, you would get $19,000 at redemption.
($10,000 subsequent taxes x 18% interest = $1,800 ($11,800).
$11,800 + $7,200 certificate redemption amount = $19,000)
Therefore, with your $17,000 investment, you have earned a $1,900 profit-over 11% interest!
If the municipality imposes the 6% year end penalty, you would get at redemption $19,600.
($10,000 x 6% year end penalty = $600 + $19,000 original redemption amount = $19,600)
So with your $17,000 investment you have earned a $2,600 return-over 15% interest!!
In the event you decide, not to add subsequent taxes, but to buy the next year's certificate in the amount of $10,000, you would get a whopping 24% on this certificate.
(18% interest + 6% penalty = 24%)
If the lien is redeemed after the second year, you would receive $19,600.
($10,000 second year's certificate x 24% = $2,400 ($12,400)
$12,400 + $7,200 first year's certificate redemption amount = $19,600)
In total, you have earned $2,600 profit on your $17,000 investment-that's over 15% interest!!!
Now here comes the good part, if the municipality adds the 6% year end penalty, and the certificate's redeems after the second year, you will receive at redemption $20,200.
($10,000 x 6% year end penalty added by the municipality = $600 + $19,600 original redemption amount = $20,200)
As a result of your $17,000 investment you have earned an amazing $3,200 takings-that's over 18% interest!!!!
Q: What is an abandoned house list?
A: Some municipalities keep a list of abandoned houses.
Q: What happens if I own a lien on a property that is on an abandoned house list?
A: In the case of a property on the abandoned house list, the two year foreclosure waiting period is waived and the foreclosure process can begin right away. You may also, in some cases, make repairs on the property and include the expenses in your tax lien.
Q: What happens if the lien doesn't get redeemed after two years?
A: When the two years are over, you can begin foreclosing on the property.
Q: How long does the foreclosure process take?
A: Usually about a year, but if the owner files for bankruptcy, it can take longer.
Q: Do I need a lawyer to proceed with a foreclosure?
A: You sure do!
Q: What happens if there are any other liens on the foreclosed property?
A: All liens are abolished. In New Jersey, IRS liens also get abolished and you become the owner of the property, free and clear.
Q: Will the foreclosed property go to auction through a sheriff's sale or do I get to own it?
A: In most cases in New Jersey, you get to own the property, but if there is an IRS lien on the property, it will get auctioned off.
Q: If the owner files for bankruptcy, will I lose my money?
A: No, it might delay your profits, but eventually you will recover it with all the interest owed.
Q: Is there any risk involved?
A: Basically, the only major risk is you may end up owning a property that is worthless, so researching the property is extremely important.
DISCLAIMER: Any facts outlined above are for informational purposes only. TheTaxLienBroker.com cannot guarantee the accuracy of information provided. Information is pertinent only in the state of New Jersey.
