NO MONEY FOR those HIGH UTILITIES? PAY, HOWEVER YOU CAN or
the CITY WILL SELL YOUR HOME OUT FROM UNDER YOU!
One raw day in early February, Vicki Valentine stood by helplessly as real estate investors snatched her West Baltimore home over what began with an unpaid city water bill of $362. Those small amount liens happened to 666 other families in that city, as well, same year. There were nearly hundreds of times more LARGE amount liens but that's a different story.
As snow threatened to fall, she watched a work crew hired by the new owners punch out the lock on her front door. A sheriff's deputy was on the scene while Valentine and her teenage son piled whatever they could into a borrowed car.
Running out of time, Valentine scrambled to pack up clothing and mementos.The home had been her family's for nearly three decades, and her father had paid off the mortgage in 1984. 'It's hard to say goodbye to this house,' she said. 'It's like someone forcing you out of something that belongs to you. I don't get it.'
Valentine lost the two-story brick row home after the city sold her debt to investors through a contentious and Byzantine legal process called a 'tax sale.' This little-known type of foreclosure can enrich investors as growing numbers of property owners struggle to pay their bills.
These foreclosed homeowners are not the families making headlines for taking on mortgages they could ill afford. Families ensnared in the tax sale sometimes are unable to overcome relatively small debts owed to local tax collectors.
Rather than collect the overdue money they are owed, many local governments are selling tax liens. Buyers range from behemoths such as JPMorgan Chase & Co, and some regional banks and law firms, to small-fry investors lured by late-night television commercials promising quick riches. Investors generally bid in an auction for the right to collect delinquent taxes and other municipal debts on property owners, sometimes by paying only a few hundred dollars. When owners can't pay, investors can pick up property at bargain prices.
It can be a good deal for everyone except the property owner. Selling the debts to investors can help governments efficiently ease budget woes without having the added expenses of debt collection, foreclosing and being a landlord.
Investors, meanwhile, can rake in hefty profits. That's because they can tack on fees and steep interest rates, which can amount to 18 percent annually in Baltimore.
In Valentine's case, legal fees and other charges climbed past $3,600--nearly 10 times her original bill.
Investors purchased an estimated $30 billion of real estate tax debt held by governments across the country in 2009,double the amount a year earlier, according to the Florida-based National Tax Lien Association. Altogether, 29 states and the District of Columbia can sell tax lien debt to investors.
Lien sales in Baltimore have nearly doubled since the housing bubble of 2006. On Monday, the city sold 12,689 liens -- a probable record. Properties ranged from boarded-up shells and vacant lots to row homes in gentrified neighborhoods and some commercial buildings.
City records show that one in five of these liens on properties is for unpaid taxes or other municipal bills amounting to $1,000 or less. If Baltimore's 2009 tax sale is any indication, hundreds will stem from delinquent water bills; there were 666 such liens last year. SAD isn't it.
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A real estate gal told me: Sometimes people don't pay their property taxes. When they do this, eventually the taxing authority (usually the county, sometimes the city if there's city property taxes) sues them in a tax foreclosure to force the sale of their house in order to use the proceeds of the sale to pay the taxes off. While it is tragic that someone might lose a house in which they have significant equity by not being able to pay the taxes, the other side of the coin is that someone else might gain a piece of real estate for very cheap. That someone else could be you.
Because property taxes are the first lien on a piece of property, in front of the mortgage and any mechanics' liens or certified judgments, and because foreclosure wipes out liens on property, it doesn't matter if the property had a mortgage on it. You can buy it for the taxes and it'll be free and clear.
It is possible to bid at these auctions and buy property at significant discounts. However, other bidders can bid up the price of the property. Furthermore, you must have the cash to pay for what you've bought. Still, it can be a good deal.
Some states also have an intermediate stage where the taxing authority sells an interest bearing instrument called a tax lien certificate. Basically they are getting someone else to pay the delinquent property taxes and paying them interest. They then charge the interest to the delinquent taxpayer. Some states pay really good interest on these certificates, as high as 20%. So for an investment of maybe as little as a few hundred dollars, you can be getting some pretty good interest. Most times the taxpayer catches up. Sometimes they don't. You still get the interest.
The taxing authority will sit on the certificate for a while, maybe a year, and then if the taxpayer still doesn't pay their taxes they foreclose. In most places the certificate holder only needs to apply to get the deed to the property, but in a few places they need to actually do the foreclosure themselves. In this manner, you can obtain a property for pennies on the dollar.
How to get these certificates:
Some counties only sell these certificates in bulk, but others offer them by the each to anyone. Often they'll have an auction once or twice a year. If a certificate doesn't sell at the auction, then the county offers it for sale over the counter. Some places even offer them over the Internet, so you don't need to travel there to buy the certificate.
Each state is different about whether or not they have tax lien certificates or not; and each county in states that do certificates do theirs differently from the next county. So you have to look it up, or call and ask.
Here's the Caveat Emptor: Anytime you buy one of these certificates, or bid on a property at auction, it behooves you to know what the condition is of the property. The dangers are not only that the property is run-down, or missing its plumbing, or has building orders on it. Sometimes a property might have an environmental problem. Maybe the owner isn't paying taxes on it so that he will lose the property on purpose, because otherwise he faces an EPA clean-up of an old underground gas tank. Maybe the property used to be a gas station. For this reason, many buyers of tax lien certificates check and make sure the property is not on a street corner, because gas stations are mostly on street corners. They will have also someone go look at the house and see if they can determine what its condition is. The closer to the time of the auction you can do this the better. People losing their houses often get mad and strip them of their fixtures, or thieves can break into vacant houses and do this. This could happen right before the auction.
There are tax lien states and tax deed states. OH is a tax deed state. If you don't pay your property taxes the Auditor can foreclose on you. If the house doesn't sell I think then the county gets it and people can buy it from the county. I met a guy who bought property that way real cheap. KY and IN are tax lien states, if you don't pay your property taxes they make a lien first, and then eventually sell your lien at auction. If it doesn't sell at auction, then people can buy the lien afterwards from the property valuation authority (this is the KY version of the auditor) or treasurer, not sure which. Anyway, the buyer of the lien gets a pretty high return, like 12 or 16 percent depending on which state. The guy who has the lien on his house has to pay 12 or 16 percent. If the taxpayer still doesn't pay, then either the taxing authority can foreclose, or maybe it's the lien holder who has to if they want their money. I think it differs from place to place. Michigan has a hybrid system. In some circumstances, like if the taxpayer doesn't pay for 2 years, the rate on the lien goes up to 50%. But there are some places in MI where it's just a tax deed sale. If your house goes this way you do get a lot of chances to redeem it. The house next door to mine was recently attempted to be auctioned for the city taxes, but no one bid. It was tied up in a bankruptcy and then I think the owner died. It has been vacant a long time.
I went to the Hamilton County OH website (this is the county Cincinnati is in). Apparently they do sell tax liens in Ohio, but only in bulk. Here is what it said. " The purpose of the Tax Lien Sale is to collect delinquent real estate taxes owed to the county which are needed to fund our schools, agencies and local governments while offering property owners the opportunity to retain their properties and avoid foreclosure. Basic Overview of the Sale Taxes that are unpaid following the Second Half (June) tax collection period are advertised as delinquent in November and are eligible for tax certificate sale in
October of the following year. If you have unpaid taxes and your property has been advertised, a tax lien certificate may be sold on your property. To avoid the sale of a tax lien certificate on your property, you must pay your taxes in full or have entered into a payment plan with the County Treasurer's office. You may also be responsible for additional fees and costs associated with the tax lien certificate sale. For information regarding your delinquent taxes and the availability of payment plans, call our Delinquent Tax Department at 513-946-4799. Tax certificate sales are usually held around the 2nd week of October. For more information on purchasing Tax Liens, contact the Treasurer's office at 513-946-4800. Please Note: All eligible liens will be auctioned as a single block. The county does not sell individual tax lien certificates. As in all Ohio counties selling tax certificates, the bulk sale or auction of tax certificates in Hamilton County is not designed for individual investors."
You can buy a certificate? Does this mean you can buy a house? I asked by return email."Yes, You can buy a tax lien certificate and if they don't pay their taxes after that you can end up with their house, cheap. That's the short answer. So in a way it's a double edged sword. Either you can lose your house for not being able to pay the taxes, a relatively small sum compared to the value of the house, or you can pick up a house cheap because someone else can't pay their taxes.
The long answer is caveat emptor. Sometimes there is a reason why someone is neglecting to pay their property taxes. Maybe they are trying to get foreclosed on so they can get away from an environmental problem. EPA clean-ups are not cheap.
Or, it may be a property with a lot of building orders on it, in a bad part of town. You have to do your homework. Inspect (or at least drive by) the property you are thinking to bid on. Or get someone to do it for you. I once had a tax lien certificate opportunity fall in my lap. When I bought the house I live in, I kept getting these Arizona property tax bills mailed to my house that were for the prior occupants of the house (they were deadbeat relatives of the guy who sold it to me). They owned a trailer down in Arizona on land and hadn't paid their property taxes for a year or two. I called the county it was in, Navajo County, and found out I could purchase a tax lien certificate on the trailer for the $600 these deadbeats owed, and probably end up with their property after a while. I had $600. But I wanted to find out what I was getting into. I asked more questions and found out that the trailer actually had utilities going to it (sort of rare in that part of Arizona) but it was a single wide from the 1970's (i.e. a dinosaur with aluminum wiring and not worth very much). Also the prospect of driving to Arizona to determine whether this trailer was actually in any condition to live in, made me pass on it.
There are some who espouse buying tax lien certs. as a high yield investment, because some states pay up to 20% interest, you're guaranteed either a return on your money, or the property, the amounts you invest can be relatively small, and most of the time the owner of the property catches up on their taxes and you get the interest, not the house. You can also buy these certs. online in some counties, which means someone can be in another part of the country, even be overseas, and as long as they have someone local to inspect houses, they can invest. Also, through a tax foreclosure, all other liens on the property are wiped out, including the mortgage(s). So if you get the house, it's free and clear, with a few exceptions (water bill? Special assessments?) Institutional investors sometimes buy tax lien certs. in bulk.
Each state, even each county is different in how they handle their tax liens. A lot of times they'll have an auction once a year, and then whatever doesn't sell at that auction can be bought directly from that county. Some counties will sell their leftovers over the counter.
Now this is just the states that sell tax lien certificates. Some states just sell the property at auction instead and don't bother with the certificate stage. Read The novel "House of Sand and Fog. This Iranian guy buys a California house at a tax auction, and there's this recovering druggie girl who lost the house, she falls in love with the sheriff's deputy whose duty it is to put her out, he starts doing things to harass the Iranian guy, and things get very weird and tragic. It's also a movie with Ben Kingsley
You heard of rent to own, now there's SQUAT TO OWN! ANOTHER METHOD of getting real estate is to use a combo of tax liens and adverse possession to get real estate cheap! There is a lawyer out there who is advocating the use of adverse possession to get real estate, so google those search terms. In Calif, if you inhabit (squat in!) an abandoned house and pay the property taxes on it for 5 years, you can then do a quiet title (it's a kind of lawsuit against the whole world) and get title to the house. Quiet title lawsuits cost around $1500 to start. So you can't be utterly penniless and do this, but you can get a house cheap that way. You can also use tenants to occupy the house, you don't have to occupy it yourself. There's so much abandoned property nowadays due to all the foreclosures, I'm sure this is a ripe time to do it.
The REAL ESTATE girl's own BLOG has the story of leins and a great deal more
PENNYPINCHER USED TO BE THE WEBSITE Emily Baehr's blog. She quit though. You can go there and see the main page is all. BEFORE SHE LEFT, she put up a piece about how YOU can LIVE just fine without utilities. "If you are broke, just turn the utilities off to save money until you are back up and earning. It's no shame, no blame to be out of money these days. Power companies are now sending agents around to talk to people who had their utilities cut off for nonpayment and who are living in their houses without energy, to get them on some kind of payment plan and get them turned back on. But what that tells us is...the number of people living without utilities is increasing in this recession.
There are various ways people could use less energy and water at home, or live without utilities in their home if need be. Some of these tactics could be used in an emergency, i.e. like in rural Kentucky when ice storms down a bunch of power lines and people are without electricity for weeks. Or after a flood where the town water is no good. This has happened a few times near here in the last 5 years.
A rain barrel is obvious for saving water. Get a food grade drum or maybe even just a very clean (aka new) trash can, and stick it under a downspout. But give it a side PIPETTE. Home DEPOT has the set up. If you don't trust it to drink, you can use the water to wash dishes and bathe with or water your plants. This works when it's not frozen solid outside, anyway.
THEN, THERE'S VAN LIVING. TRUCK. TINY HOUSE LIVING, one you pull behind an old Toyota truck. (Better be 8 cylinder.) FOr that, one could use the advice in www.cheaprvliving.com and get a deep cell (marine) battery at Wal-Mart and recharge it somewhere. (The library? Work? A cafe that has plugs for laptops?) Then run a light or two off it at night. I am not sure how long it takes to charge one of these up. It would be inconvenient if it took more than an hour or two.
Solar yard lights. Get a mess of them, leave outside during the day, then bring them inside at night. I have rescued one whose stake was broken off, and set it upside down in the top of one of my bedroom lamps. When I turn out the light, I have an instant night light.
I once heated only the basement of a house, with a space heater, to keep the pipes from freezing, and I think the reason wasn't just frugality but that the house didn't have a furnace yet. It was under renovation. It cost $50 a month.
One ex-BF of mine was so frugal he would draw a super hot bath (he had free hot water) and try to partially heat his apt. with that. He'd just let it cool down for an hour until it was tolerable to bathe in and then bathe.
One of my bosses fills 5 or 6 gallon jugs weekly with water from the office. His well water isn't fit to drink. He can bathe in it but can't drink it so he gets his drinking water from the office. I guess someone could also do that at a truck stop or other public bathroom. If the gallon jug doesn't fit under the tap, get a big cup and then pour that into the jug.
I once had a band mate who lived in a warehouse space. He'd built an enclosure for his bed and stuck a space heater through the wall of it. This way he could heat just his bed area instead of the whole place. Dating musicians you learn a lot of nifty things.
If your house has no heat, you can Build a regency HENRY VIII Drapery Covey around a mattress to tent you, keep body warmth in. Or pitch a tent in the living room and put your mattress in it. That is providing you have the right kind of tent (one that stands up on its own instead of needing stakes to keep it up). I guess you could also just get a couple of tarps, drape them over chairs like you would a blanket for a kids' play space, and fake a tent, it's not like you have to keep moisture or wind out. It's amazing how much heat the human body generates and you only need to feed it brown rice and salad to get that effect!
One of the most common pieces of advice I've seen for homeless people is to join a gym so you can take showers. Gym membership is cheaper than rent. So if you are without water at home you could do that. (But make sure you don't get hosed by the gym. Sometimes it's hard to get RID of a gym membership once you join). This may be more expensive than just a water bill. I'd only do this if it made sense under the circumstances.
Free heat: My handyman recounted to me how he has jerry rigged his furnace. Instead of burning gas, he uses a pot belly stove next to the furnace to burn scrap wood from his construction projects and then he uses the fan in the furnace to waft the hot air from the basement up through the vents. The heat also naturally rises up through the house, so he makes one fire in the stove in the morning, and by night the attic where he sleeps is nice and warm. He pays about $25 a month for gas/electric. This is in the winter and in the far north. And he doesn't have to pay for dumpsters to haul away scrap wood from his sites. The better scrap wood, he turns into things like homemade cabinetry, shelves, etc. Befriend a carpenter and you may learn frugal tips like these. He's got lots of little things like that. Tune in to my blog from time to time, I just follow him around with a pencil don't you know."
Lots more of Emily Baehr's handyman tips, her entire frugal world was at her frugal blog: http://www.pennypincherpersonalfinance.blogspot.com
But she's on hiatus now. And didn't leave the articles where we could find them. Tsk Tsk. I will try to carry on without her.
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