Don't Buy Tax Lien Certificates Unless You've Done Your Homework!

Homes For Sale In New Braunfels Tx By Owner - Don't Buy Tax Lien Certificates Unless You've Done Your Homework!

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I went to a tax sale yesterday in an out of the way rural municipality in New Jersey. Unlike most of the tax sales in New Jersey this sale was poorly attended. New Jersey is a very contentious state for tax lien investing so this was an uncommon event.

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Homes For Sale In New Braunfels Tx By Owner

Most serious bidders arrive an hour before the sale starts. At first, I was pleased to see, with less than an hour to go before the sale, that there was only one other bidder there. Then I did my explore on the properties that were left in the sale and I discovered why other investors didn't bother with this sale. Out of the thirteen properties that were left in the sale, there was only one decent property. All of the other properties were vacant land and when I looked on the tax maps and checked with the zoning group (this is why I arrive at the sale an hour early) I found out that none of these properties were build-able lots. Most of them were land locked and none of them were large adequate to build on, even though one parcel was a three-acre lot.

Since the other bidder there was a expert bidding for an institutional investor, I decided not to bid on any of the properties in the sale. I knew that if I bid on the one property that had a house on it, the expert bidder would bid high prime for it, so I decided not to bid him down and not to bid on any of the other properties since they wouldn't be profitable. I stayed colse to to see what would happen at the sale.

About fifteen minutes before the sale three other bidders arrived. These investors were new to tax lien sales and did not admittedly know whatever about them. They asked the tax collector a few questions before the sale and indicated that they admittedly weren't there to bid but intended to watch since this was their first sale. When the sale began the tax collector let us know which properties had prior liens. Four of the undesirable properties had prior liens. I was not surprised and this just confirmed my suspicions that these properties were not worth bidding on. If they were, then the prior lien holder would have been there to bid on them, or would have paid the subsequent taxes and prevented them from being included in the tax sale.

The tax collector announced the first property, and seeing that no one was bidding on it, one of the new bidders could not resist. He bid 18% and was awarded the lien (this was the 3 acre landlocked and undersized lot - you need 5 acres to build here). The next three properties were struck off to the township at 18%. The next property was the only one with a house on it and that went to the institutional buyer at 18%. There were eight properties left. Other one went to the township. The temptation to bid and get a get a lien at 18% was too great for the other two new investors; they bought three liens each, each one at 18% interest. Fortunately for them, they were very small liens.

After the sale, I explained to them that they should check the zoning on properties before they bid on them. The tax collector does not tell you before the property is sold if it is unusable property and that is why the owner did not pay the tax. The tax collector only has to convey that industrial properties may be field to the Environmental Clean Up Act, the Spill recompense and control Act, or the Water Pollution control Act. And this is regularly done in fine print; on the consideration of the sale and the bidder data sheet.

When it come to buying tax liens, and this goes for other states as well as New Jersey, it's "buyer beware." As the investor, it is your accountability to make sure that the property that you are purchasing a tax lien certificate on is a needful piece of property. Even in states like New Jersey, where real estate is at a prime and has increased in value tremendously over the last five years, there are still tax parcels that are worthless. In many areas of the state, municipalities have been steadily expanding the zoning requirements for all types of properties. In many rural areas you need a few acres in order to build a house.

I know that many of you are under the false assumption that if you are a holder of a tax lien certificate; you are guaranteed to get paid. This is not true; it is a misrepresentation that is fostered by real estate infomercials and high priced seminars. The truth is that no one guarantees that you will be paid. You are first in line to get paid, but there are circumstances in which you might not get paid. You do have the right to foreclose on the property if you don't get paid within the redemption period, but what if the property is worthless? Than you have a worthless piece of property that you have to pay taxes on.

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Estoppel Certificates

Homes For Sale In New Braunfels Tx By Owner - Estoppel Certificates

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Estoppel, to the non-initiated, sounds more like the latest toy in the Pentagon's vast array of private weaponry and armaments, something that belongs more to Area 51 than the real estate world, or maybe the latest scandal to permeate Capitol Hill. "Cia's Probe Leak: The New Martin Lochheed F-22 Supersonic Estoppel!", one might envision reading one day in the front page of Usa Today. But readers of my Articles know better ...

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Homes For Sale In New Braunfels Tx By Owner

In Real Estate, an "Estoppel Certificate" is a document signed by the Seller, under oath, confirming the representations made by the jobber in the contract of buy and Sale. The reasons for the Buyer to ask an Estoppel Certificate are twofold. First, to confirm the Seller's representations as stated above and, secondly, to bar and forestall the jobber from later on asserting a fact, that is inconsistent with the terms of the Contract.

For instance, when purchasing a rental asset - either a house or an apartment building - an investor might want to insert the following two conditions precedent ('subject to' clauses). The first might read:

"Subject to the Buyer by ( insert date ) reviewing and approving the Residential Tenancy Agreement(s) presently in supervene and face the asset herein bought and sold. jobber warrants that the term(s) of the tenancy is/are for a duration of ( insert distance of tenancy ), the monthly rent(s) is/are ( insert estimate ) and that the last rental increase was on ( insert date )".

What happens if, by the time all the subjects are removed (and the asset is virtually sold) and the time the investor completes the transaction, the tenant is run over by a bus and dies? In some instances the shop value of the branch asset may be altered, as in the case of an investor purchasing a expert building. This is where an Estoppel Certificate fits in.

The second clause might read:

"Subject to the Buyer, after all the other subjects herein are removed but in no event before two weeks (or any other time) prior to completion and no later than one week (or any other time) prior to completion, receiving, perusing and approving an Estoppel Certificate ratified by jobber face the existence and confirming the validity at law of the branch matter and terms of the tenancies herein. Failure by the jobber to provide such Estoppel Certificate in the aforesaid time-frame will render this contract null and void, and all deposit monies until then paid by Buyer will be refunded to Buyer forthwith with interest accrued thereon, if any there be".

The presume for Estoppel Certificates to exist in Real Estate is to be found in the equitable religious doctrine Of The Promissory Estoppel. Under this doctrine, one party is barred and prevented from withdrawing a promise made to someone else party, if the latter has relied on that promise and acted upon it. All the more so, since contracts in real estate are made 'under seal' (deeds) and, as such, the rule of evidence arising from the special status of a deed is that the parties are staggering to take greater care to verify the contents of the deal and their validity at law, before consummating it.

The American Law found goes one step added by discerning between equitable and promissory estoppel in its Restatements of Contracts as follows:

"Equitable estoppel is inescapable from promissory estoppel. Promissory estoppel involves a clear and specific promise, while equitable estoppel involves only representations and inducements. The representations at issue in promissory estoppel go to future intent, while equitable estoppel involves statement of past or present fact. It is also said that equitable estoppel lies in tort, while promissory estoppel lies in contract. The major inequity between equitable estoppel and promissory estoppel is that the former is available only as a defense, while promissory estoppel can be used as the basis of a cause of activity for damages. The American Law Institute's website can be found at http://www.ali.org.

All the foregoing plainly goes to prove, once again, that the discipline of real estate wheeling and dealing is littered with rubbish all the way - until such time as a contract is entered into and ratified by the parties, at which time Real Estate suddenly becomes all too deadly serious.

Luigi Frascati

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