Coronavirus and Tax Sales

Transcript:
Hey there, it’s Casey Denman here from TaxSaleAcademy.com talking about Coronavirus and Tax Sales.

So, if you’re not familiar with me, I’m the expert when it comes to tax defaulted real estate, wrote a book on the subject and I’ve been asked for my opinion multiple times over the last couple of weeks on the impact of the coronavirus on the tax sale business.

This is an important episode and it will be available on my podcast at TaxSalePodcast.com, it’s also going to be on YouTube and Facebook.

But let’s talk about the Coronavirus now. I’ve given it a little bit of time to play out some just to get a better idea of what the local governments are doing, how they’re handling it and really to get a better idea of the impact it will have. Like the rest of the world, this is a situation that changes just about hourly, so much of what I’ll be discussing is based off of my experiences in the past, my knowledge of the business and a little speculation based off of that.

First off, there are a number of different things we really have to look at.

The virus itself is devastating and my heart goes out to anyone who has been medically impacted by it whether it’s you personally, a family member or a friend. Secondly, because of the actions to reduce the spread of the virus, our economy has been devastated. Many have lost their jobs, had reduced hours or in someway have lost money because of the rippling affect. And again, my thoughts are with you if this is the case.

I think it’s important to understand the impact this has on the economy. Even if you are ok, you didn’t lose your job, you haven’t lost a dime, whatever, it will still impact you if things remain the same. As of the recording of this video, many states are in mandatory shelter in place orders. Commerce as we know it has all but stopped. Millions are now unemployed. This impacts everything, including real estate, and even tax sales.

I got involved in real estate not long after 9/11. I was well into the business during the 2008 recession, which I’ve spoken about at length many, many times. But, the events we’re seeing today are unprecedented. A month ago, we were in a good economy. And then suddenly the coronavirus, COVID-19 hit. In economics, commerce is what fuels the economy. The buying and selling, the exchange of good and money. But when the coronavirus hit, that stopped. In fact, in many situations we were forced to stop, through shelter in place orders and that kind of thing. While small business has done everything in their power to weather this storm, it’s not nearly the same it was.

And as a side note here, if you have a favorite small business, NOW is the time to support them. Do whatever you can to help them. Many small business work off week to week or month to month sales and simply can’t make it without your support.

The real estate market is in a sharp decline. You see, unlike the immediate revenue numbers from small businesses, or looking at unemployment applications and that kind of thing where we can get virtually real time numbers, real estate transactions take time. The true impact on the real estate market will start to show in 20 or 30 days from now.

So, back to the original question about how this impact tax sales.

Let’s go over a few different things.

First, off we must always remember that the purpose of the tax sale system is to get money back into the local government’s budgets after the owner failed to pay the taxes. So, the local governments have budgets that must be met to pay police, fire, roads, and a whole bunch of other stuff. When someone fails to pay the taxes on time, the property begins the relatively lengthy path to tax foreclosure. The county’s purpose in doing this is NOT for the investor. They have two objectives (1) to get to delinquent taxes paid and (2) to get the property back into the hands of a responsible tax payer. That’s it. They rely on this tax revenue to operate their cities.

Unlike many businesses, tax sale investing has been around for thousands of years. Yes, I said thousands. It dates back to the ancient roman empire days. It’s a necessary system in every form. It’s also written into every single state law. It’s not something that can be changed at the discretion of your local leaders.

Now, what happens is the current state of the coronavirus does modify it slightly. First off, you have just about every state in some form of declared emergency, which provides certain powers. You also have federal orders which can change some things. One of these in the CDC public gathering issue. Then you also have administrative orders suspending foreclosure files and all sorts of other stuff.

What happens to the auctions?

Obviously you can’t hold an in person auction in this scenario – it’s against the law right now. This means that they will be postponed. And we’re starting to see this right now across the country. My assumption is that most of these will be rescheduled as soon as the CDC recommendations are lifted. Again, the counties need these fund and they need them sooner rather than later. Even though the economy might be a virtually a standstill, the county’s expenses are going to be about the same. While they might get a little help from the state during these times, they know that their time is very limited without having these much needed property taxes.

In some situations, it’s not that big of a deal, they’ll just reschedule it on the calendar. In other situations, depending on how their state law it written, the county might actually have to provide new notices. So, what this means is that the person losing the property is notified about it’s sale. It also could go into a newspaper or wherever else advertising that sale. So the auction could very well be postponed 30, 60, 90 days or more depending on how long that process takes.

So, will they cancel properties from auction. No. Will they delay them? Yes.

In a lot of cases, these counties know as much about this virus and the future as we do. They’re county treasurers, county clerks and that kind of thing – they’re not experts on when this is going to end. So they’re trying to be as fluid with the situation as possible.

Now the counties with online auctions – many are still selling the properties and liens. A few have been delayed for various reasons like staffing issues, but most are still going at it. And, on a side note, I’ve been reviewing a few results and have seen the number of bidders decline already.

This entire thing really makes the case for online auctions even stronger, of course. And my suspicion is we’ll see more and more counties migrate to online auction platforms in the near future, just as we have been for the past 9 or 10 years. Now, converting to an online auction platform is not an immediate process and it takes quite a bit of time, and in some states, it might still not be allowed in the legislation but it will happen eventually. With situations like this occurring, as well as technological advancements and the society’s expectation in general, online interaction will only become more and more popular and will drive the demand for online auctions.

Alright, so now that we discussed the auctions, let’s talk about future auctions.

First off, a lot of stuff will be delayed in the delinquent tax process, from the delinquency dates, to the foreclosures and everything in between, so just understand that. Now, there shouldn’t be any huge gaps in auctions, simply because the entire schedule is getting pushed out, but there will be delays. And the longer the economy is essentially shut down, the longer those delays will be.

In some cases, it’s because a courthouse might not be open, so they can’t process files. In other cases, the judge’s aren’t hearing cases, so tax foreclosure might not get the necessary signatures. In many states, they are providing some relief on the tax due dates. I just got a notice the other day that my property tax deadline was extended a couple of weeks.

And while you can expect some delays for that type of stuff, we also have to remember that much of the process is written into state law. They do have a little discretion, but they can’t simply cancel all future sales because the economy is in a recession or a depression. And when normalcy returns, when the emergency declarations get cancelled and that kind of thing, any discretion that they do have will have to align with state tax sale laws.

So, how does this all impact us as investors?
Well, obviously it has a tremendous impact in the short term, until the shelter in place type orders are lifted and the economic is free to transact again. The real estate market, like most other things has slowed down significantly. Buyers don’t want to get loans on properties when they aren’t collecting paychecks and many investors are holding onto their money trying to figure out what’s happening in the market. A lot of people are in a holding pattern waiting for the path to a return to normal.
Much of what happens after that, depends on how long it takes for that to normalcy to occur. The sooner everything is back to normal in the short term, as in people are working, businesses are open and money changes hands, the sooner the real estate market will be back to normal.

My personal opinion is that we’ll likely enter a state of recession, so let’s talk about that for a little bit.

In a recession, you’re going to have more properties in the tax foreclosure system. You’ll start seeing quite a bit more vacant land for sale, more second homes, more investment homes from the hobbyist type landlords, and yes, you’ll even see more personal residences pop up. The inventory will increase, just as it did in 2009 and 2010. You’ll have more to choose from.

Combined with this, we also tend to see a lot of investors leave the business. Everyone wants to be a real estate investor when the market is good. But, to be a real estate investor when the market is in a recession actually takes skill. And I personally think that’s a good thing. The investors who are haphazard, the ones who pay too much, the ones who are hobbyist, those kind of investors will be out of the business. You’re going to see a clearing of the system when it comes to investors. The ones left will be the investors who have strategies and know what they’re doing. This means that the prices will also drop, since the competition drops.

So, more properties and less competition. That’s one of the formulas for success in this business.

If you know my story, you know that I changed my business model around 2008 when the recession hit. Sure, the overall strategy is still the same – buy for one price and sell for more. BUT, the way to get there does change slightly. For example, if you’re in the business of selling to other investors you’re going to have to be a little more creative. But when I look back at 2008, I can tell you without a doubt that was the time my business started to grow exponentially. I developed strategies, came up with a plan and dominated. That recession was when I truly began to build my business.

I did a video on this a while back, but tax sale investing is not like traditional real estate investing. There will always be a need for real estate. And typically, tax sale real estate is the lower dollar properties. These are the properties that most people can afford to buy. During a recession, we always see the mid to high end homes take a huge hit, and the lower end properties, the most affordable properties are always last to be affected. Sure, they might be affect a little, but people need a place to live and these properites are the cheapest. Obviously, they’ll be affected the least amount.

We also have to consider that these are bank owned properties, short sales or anything like that where they’re leveraged to the max and there is a third party trying to get their payoff of close too it. These are tax defaulted properties, which means that they have taxes owed on them. This tax amount is likely less than 10% of the value of the property. These aren’t overleveraged properties that have crazy thing margins. These properties usually have insane margins. Margins, which by the way, are controlled by either the taxes due or the bidders on that property, not on a third party like a bank,

As I wrap this video up, I’ll you this. If you’ve ever wanted to get into this business, NOW is the time. BUT, here’s the deal. You have to learn what you’re doing and you have to be committed. In a booming economy, there are a lot of people who come across dumb luck. The one good thing about a recession is that it filters all of these people out. It filters out the ones who don’t want to put in the effort and don’t want to learn the property way to do things. And that’s a phenomenol thing for the ones like you and I who DO want to put forth the effort.

This is an incredible business. It’s sustainable and has been around forever. And NOW is going to be one heck of a time to get into it. If your’e confident, start today. Find an online auction and go! If not, then use the next few weeks or months, or however long it takes for us to get back to normal to prepare. To learn. To study. To research. To get ready and to gear up. Because you’re about to see opportunities like you’ve never see before.

I hope you’ve enjoyed my take on Coronavirus and it’s impact on tax sale investors. If you’re looking to learn, I’ve produced more training content than anyone in the world and I’d love to be able to play just a small part in your journey to tax sale success. There are a number of helpful links below this training, so please browse through them and see which is the best option for you.

I truly hope you see success in your tax sale business and in your life.

As always, it’s up to you… to make it a successful day.

Take care.