March 13, 2019

Although about 92 percent of 2018’s property taxes have already been collected in the booming secondary Tennessee market of Chattanooga, about two in every 25 property owners will get a tax lien notice sometime this month (March 2019). For first-time failed payers, the notice will be just the first of somewhere between four and six notices they will receive over the course of this year. However, for those who already failed to pay in 2017, their properties could soon be headed to a Chattanooga tax sale.

“Most property owners generally come in as soon as they receive one of these notices,” observed Chattanooga County tax commissioner Joy Hampton. She added that she likes to send FI FA documents, also commonly referred to as FIFAs, the first week in April “to allow people who pay with their tax refunds ample time.” The term FIFA refers to a writ of fieri facias, which is a document issued by the county clerk in your property’s county to record a lien on your house after a creditor, in this case the municipal government, obtains a judgment against you. Hampton said she issued the notices of delinquent payments early this year “to allow extra time to pay before any liens are recorded.”

In the event that the payments go unmade, property owners who have been delinquent for more than a year could face the tax sale in March, April, June, August, or September. Chattanooga reported it may add even more sales as the year progresses. In Tennessee, investors who bid at these sales are not actually buying the property in question but a lien against it. These liens may come with as much as 12 percent annual interest and must be repaid within one year or the lien-holder receives “perfect title” at the end of the predetermined time period. If the debt is repaid, then the local clerk of court will pay the investor the initial amount of the debt and interest.

Property Tax Sales Prime Targets for Fiscal Reform in 2019

In cities like Chattanooga, where many investors like the idea of obtaining property at a deep discount in hopes of eventually “cashing in” on the area’s expanding economy, the competition is often fierce at these tax lien sales. However, in 2019, it will become increasingly important that investors monitor local, state, and national sentiment before investing in tax liens (or tax deeds) in any given market. With national dialogue circling dedicatedly around who should pay taxes, how much, and under what circumstances, many politicians are finding it both expedient and highly attractive to their voters to take aim at “rich investors” who participate in tax lien and tax deed auctions.

For example, in Austin, Texas, local lawmakers are finding themselves at odds with constituents who simultaneously believe the government should provide more money for school funding but also demand property tax payment and debt relief. On a national level, the National Consumer Law Center releases regular reports about how tax lien sales place unequal burden on low-income, senior, and disabled populations. All of this combines to create scenarios in which some cities and some local lawmakers are prone to change the rules on property tax collections and, by extension, the property tax lien or deed regulations in their area, in order to garner support from voters or receive favorable media attention.

Fortunately, certain states are more friendly than others to tax lien and tax deed investors, and certain strategies are far more effective at protecting your interests as an investor when you purchase tax liens or tax deeds in those states. For example, in Illinois, although the process of getting a deed may be lengthy and thorough, when you are finished you have an extremely clean deed in hand and are unlikely to experience any regulatory or legislative mishaps to complicate or even unravel your investments. Kentucky and Ohio, on the other hand, have simple, “clean” deed conveyance processes with clear guidelines for how investors obtain deeds and what liens they may owe upon gaining ownership of the property. All of these states have systems designed to protect delinquent property owners without harming the municipal government, which relies on the taxes those owners owe, or the investors, who will ultimately pay those debts in good faith in exchange for participating in a solid system.

You Can Make the System Work, But Only If You Understand It

If you want to invest in tax liens or tax deeds or if you have in the past and found it more complicated than you hoped or anticipated, you have many options. It is possible you simply started out in the wrong state for your particular preferred strategy. Sometimes, investors also find that they should have opted to work with a group that has strong purchasing power, since this can provide leverage when it comes to getting lower prices and working with local governments. Tax lien and tax deed investing is one of the best ways to accomplish that classic real estate investor goal, “Buy low and sell high,” but knowing the ropes or working with an expert who already does is crucial to your success in this investment sector.

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