As a Real Estate Investor, How Are You Helping Owners Facing Tax Delinquency?

How are you servicing those who may be facing hardship? 

Tax delinquency can be a area where many home owners may need your help as an investor. 

Join us today to review some of the key characteristics of how you can be of assistance to an owners with tax delinquent properties.

With any hardship there is always a cause and effect. 

Just because an owner is undergoing tax delinquency does not mean they need your help. 

Ironically, you actually have many owners who strategically pay their taxes late consistently, to save money throughout the year. 

These are likely owners who either do not have escrow on their mortgage, don’t have a mortgage, or they could be just last minute planners.

There is a tendency, that many owners do not pay their taxes on time, but miraculously always prevent their properties from going to tax sale. 

In these cases, the seller is not likely looking for any assistance.

However in other instances, the tax delinquency could be hence to other hardships going on in their life that you could have a solution for. 

Making sellers aware that you could help solve their problem, is resolution oriented and helpful. 

Many are appreciative to you connecting with them, so don’t feel shy.

Unfortunately, investors are not a widely known profession, so your call could be a sign of unexpected relief. Present your service, your availability, and let the owner decide. 

Many sellers know that the condition of their home is not “show ready” and the property may also require many repairs.

If any of the repairs are deemed unlivable by a lender, then a homeowner will not be supported by a FHA or conventional mortgage. This buyer pool alone covers about 80% – 90% of the buyers.

Therefore, an investor who can purchase with their own means of funding, could be a godsend to the homeowner. 

• So how will you decide the most effective ways to help someone in a hardship situation while also ensuring you are making good business decisions? 
• As an investor, you have to weigh both, considering your ability to service the customer combined with an effective exit strategy supporting your return on investment (ROI).

So let’s get into so motivational scenarios that the owner may be facing…

Seller Motivation

A key factor to understand are the rules and regulations regarding what deems an owner delinquent and when that owners property may be offered at a tax sale or tax auction based upon the county and state the property is in. This will bring us to the topic of delinquency position…

Delinquency Position –

Depending on the county and when the redemption period for the tax payer expires, each seller will contemplate their best planning, based upon their delinquency position.

Some counties may have a 1 year, 2 year, 3 year or 4 year redemption period prior to the property being offered for sale at a tax lien or tax deed auction. 

The redemption period, is the period of time an owner has to pay any back taxes prior to the property being offered at tax auction (or tax sale). The redemption period is a very important factor in gauging motivation.

Usually after 1 year of being delinquent in paying taxes, a property is offered for either a tax lien or a tax deed.

At the point where the property is offered as a tax lien or tax deed, there is usually interest and a possible penalty fee, that is added to the delinquent amount owed. 

The owner will be responsible for paying this rate of interest, and possible penalty fee, based upon how the county allocates the interest rates throughout the redemption period.

Some interest rates increase monthly, quarterly or by a flat rate throughout the redemption period.

If a owner is in a county where the delinquency begins after the one year mark, but the owner has another year before their property could be auctioned, they may not be motivated to make any decisions to sell in the short term. 

However if their home barely missed the previous tax sale auction and they see little room in improvement in their financial situation, they could consider selling sooner.

Typically you will find a higher percentage of sellers willing to consider selling when (and if) they are facing their property going to the tax sale auction within 6 months.

If they do not see any recourse of them improving their financial situation, here is when they may be prepared to move forward with selling.

They may decide to sell to you or they may want to go to the multiple listing service.

This is where your service and professional skills should be communicated to the owner is an effort to help them. 

Service

It is imperative that you have the business savvy to assist any customer in the best way possible to help them problem solve. 

Here are a few scenarios the owner may be facing…

1. Maybe the property is vacant due to a death in the family and the family could not afford to make the tax payments. If the house is in good condition and was well kept, perhaps the best result is to partner them with a realtor. If not, they may opt to partner with an investor.
2. Maybe the owner was laid off from work, or experienced less work than usual, and is behind on bills. Depending on their upkeep of the house, or their ability to prepare the house to be sold, this may display the factors on if the owner will decide to sell to a investor or to a home owner – by way of the multiple listing service.
3. Maybe the owners recently were involved in a divorce and they both stopped paying the mortgage and the escrow could no longer cover the taxes. If this happened it would depend on if the bank has foreclosed on the property yet. Maybe the owner would consider a cash offer just to relieve the burden or maybe, again, the home was very well kept and the owner has enough time to sell on the market and would prefer to go to the multiple listing service. If not, they may opt to partner with an investor.
4. Maybe the owners are preparing for retirement and have slowed down their business activities to prepare to move. In the process, they have gotten behind on their taxes due to less income. In this case maybe they could use some creative help from the investor. This could be you covering the delinquent portion of their taxes as a loan with interest,  or you creating an agreement that works best for the situation whether you buy and renovate or wholesale the property.
5. Maybe the owner is tax delinquent because the property is also vacant and a part of an estate that is in probate. In this case, there may not be access to the property and you will have to coordinate visits with the family members who are out of town as they work with the courts on heirship.
6. Maybe the owner is tax delinquent because they have a tenant that hasn’t paid their rent and now several bills are behind until the tenant gets caught up. In this case perhaps the owner will consider selling or perhaps they’ll consider something creative. You as the investor are expected to help problem solve.
7. Maybe the owner is tax delinquent because the property has not been well kept and has received fines for code violations from the city. Perhaps the code violations has caused unexpected income reductions and have affected the owner paying the taxes. In this case perhaps the owner will consider selling or perhaps they’ll consider something creative. You as the investor are expected to help problem solve.

– If you’d like to learn more about tax delinquency, tax liens and tax deeds, buy this book which is super at defining the process and getting you started in investing in this strategy.

Conclusion

Usually a component of time, repair or lack of emotion tied to the property, gauges the owners decision to sell off-market to a investor versus going on the market. 

Many times, people just enjoy their privacy and they don’t want the world to know they are selling their house.

Neither do they want strangers walking through their home countless times only to get an offer that will have multiple contingencies. 

Often times, post inspection, an original offer gets dimensioned, and the owners dread the frequent requirements and changes they must endure. 

For these reasons, many owners prefer a much smoother hassle free experience. 

As displayed, hardship situations can differ widely, but you must be prepared to help problem solve. A solution could be tailor made, or it could be “cookie cutter” and align with a practice you’ve performed the same way many times. 

Overall you must be prepared to help the customer and help align a solution that would be helpful.

We hope this article has been helpful for your investment endeavors. 

Thanks for joining us today faithful readers- future leaders. 

Love ya and keep striving for growth. 

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Please comment your experience with tax delinquent home owners, how you’ve helped them and what advice you’d give.