Getting Your Tax Liens To Redeem

I just love it when I get checks in the mail from tax collectors for redemptions of my tax liens. But what do you do when your liens don’t redeem and the redemption period is over? This is somewhat state specific because some states don’t give you much time to foreclose once the redemption period is over. You may only have 6 months after the redemption period before the lien expires, in those states you will have to start the foreclosure or deed application process right away and hope for the best.

But in states where tax liens have longer expiration periods there are things that you can do to maximize your return on your investment and get paid when you want to. Since I invest in a state that has a 2 year redemption period and a 20 year expiration period, I can let my liens go way past the redemption period and not worry about losing my investment as long as I pay the subsequent taxes. In fact the more I let the lien ride and pay my subsequent taxes, the more money I’ll make. But there comes a time when I have more money into the lien than I want to have. I don’t want the redemption amount to approach the value of the property; I don’t want it to come close to half the value of the property. I don’t want it to be more than 25% of what the property is worth.

So how do you know when it’s time to start foreclosure on a property and force redemption, and how do you know if the property will redeem or if you will actually get to foreclose on it? If there is a mortgage or other substantial interest in the property, other than the homeowner, the lien is likely to redeem after the intent to foreclose notifications are sent. The property owner was not able to pay the taxes, and likely will not be able to redeem the lien. But a mortgage holder, once they have notice of a probably tax lien foreclosure will most likely redeem the lien to protect their interest in the property.

In the past 2 months I’ve had 3 liens redeem. I’ve held 2 of these liens for more than 7 years, one for 4 years and one for just over 2 years. All 3 of these liens redeemed because I had a lawyer send out intent to foreclose letters to the property owners and all lien holders. And in each case it was the mortgage company, not the property owner, who redeemed the lien.

Here are some other reasons why you may want to start the foreclosure process to force redemption on a tax lien, other than the redemption amount becoming more than 25% of the value of the property:

• You did not pay the subsequent taxes for whatever reason and someone else bought a subsequent tax lien on the property and now their redemption period is almost over.

• You are concerned that the owner of the property may be entering bankruptcy.

• You need cash

But what if the expiration period isn’t over yet and you need cash and want to get the cash out of your investment? Can you do that even though the redemption period isn’t over yet? You can’t send an intent to foreclose letter if the redemption period isn’t over yet, but you can send a notice of the lien to any lien holders on the property. If there is a mortgage on the property and they are notified of your lien, there is a good chance that they will redeem it. Another way to get your money out of your investment before the redemption period is over is to sell or “assign” your lien to another investor.

Remember that the laws are different in every state, so before you try any of these methods make sure that you check the state statutes regarding the redemption of tax lien certificates, or check with a tax lien attorney in your state. This article is for educational purposes only and should not be taken as legal advice.