Transcript:
Dealing With Governmental Liens

Hey there, it’s Casey Denman from TaxSaleAcademy.com and welcome to our weekly question segment. Now, before we get to this week’s question I do want to remind you that if you are interested in learning more about investing in tax defaulted real state, there are a bunch of very helpful links down below in the description of today’s video.

Alright, this week’s question comes from Julia. Julia asks, I’ve seen a couple of properties with government liens. If I was to buy one of these, how do I deal with clearing those?

First off, Julia that you so much for your question.

So to put everyone on the same page, she’s referring to governmental liens that would remain when purchasing a tax deed.

So, when a property goes through tax foreclosure all outstanding liens and mortgages are extinguished during the foreclosure process, provided they receive proper notice. That’s for private party liens. Governmental liens remain AFTER the tax foreclosure. I always put it like this . . . we have to think logically here. Why would the government allow one department, like a tax collector to just wipe out the liens of another department such as code enforcement. It doesn’t make sense. The government wants as much money as possible, so governmental liens remain.

Examples of governmental liens could include code enforcement liens for things such as dilapidated homes, weed violations, trash violations, there could be liens for demolition costs, for sewer or water services provided by the city, EPA liens, and numerous other liens related to city, county or state departments.

Something to note is that many governmental liens can become excessive very quickly. And it’s not just the obvious liens. Yes, an EPA cleanup lien could easily reach into the millions. A lien for demolition of a structure can be well into five figures. But what about that trash lien? For the property owner or someone else dumping a few bags of trash there? This is one of the type of liens that always catches people off guard. It might come with a ticket for $100 and a requirement that it be cleaned up within 30 days. But if that ticket goes unpaid and if it’s not cleaned up within 30 days, the fines could start adding up on a daily basis. The cities and counties do this in order to motivate the owner to do the right thing and cleanup the property. So they’ll give you, say 30 days. Then they put the pressure on and the fine increases to let’s say $25 per day. That’s not much if you’re going to clean it up on day 31 or 35 or whatever. But, if it takes you a month that’s an additional $750. If it takes you a year that’s $9,000 in fees. And likely some attorney’s fees, compounding interest and all sorts of other fun stuff.

And that’s where it becomes crippling. If a property hits the tax foreclosure list, it means that the owner failed to pay the taxes. Not now, not last year, but two or more years ago. And if the lien that they failed to pay started at the same time their delinquent tax bill came along, we’re now talking about two plus years of these daily fees – likely $20,000 or more when everything factored in.

So that’s why these governmental liens can become a serious issue.

Now, back to the question. How do you deal with governmental liens?

The first thing is to know about it beforehand. You should NEVER just end up with a government lien that you’re now responsible for. If you do, that’s your fault. Do your research and know about it before you purchase the property and know what you’re getting yourself into. And be sure to read the fine print, such as the daily fine section so you can calculate what’s due as of today. Knowing about it ahead of time is the most important part.

The second suggestion is to correct any issues as soon as possible after purchase and document it with before and after photos. If you buy a property and it has a lien for a weed violation, then trim the grass. If there is a trash lien, then pickup the trash. Maintain the property. Get it into fantastic condition. That’s not only your responsibility as a property owner, but it’ll also help you when you do discuss the situation with the county.

Then you essentially have three choices.

You can pay the fine. If it’s a nominal amount, maybe $100 or $200 it’s going to be much easier to pay it than anything else. Even when it’s into the thousands it might make sense to just pay the fine, depending on how much equity you have. And you can do this by contacting the county, confirming the amount due and making payment. It’s a simple way to make it go away.

But that method can be too costly for some people, which brings us to the next option which is to settle with the county. This require more of a time investment. Contact the county, explain the situation, and ask if there is anyway they can drop the lien. If they won’t do that, then ask them to settle with you. Typically, whomever you talk to will not be able to make that decision. Instead, you’ll likely appear before a code enforcement officer, the city council or the county commission. Be prepared to argue that you’re a responsible owner, explain that you’ve solved the situation by showing photos and ask for their assistance in eliminating or removing the liens. The result will depend entirely on who hears your argument that day. I’ve heard of of situations where they have not removed a single penny. Other times, they’ve removed the lien entirely at no charge. So there is no definitive answer on how much they’ll reduce it if any. You can also hire an attorney to handle this process for you too, of course, if you’re not confident enough to argue your case.

Then the last choice is to simply disclose it, sell the property with the lien and let the buyer handle it. This will obviously hurt the value of the property. Not only will you not have title insurance on the property, but you’ll also now have an outstanding lien. But, this is the option some people take.

So, the first key is to know that the lien exists before hand, then solve the lien for the governmental lien, then either pay it, attempt to settle it or sell it as-is.

Many people actually target properties with governmental liens because they can scare other investors away. Don’t let these liens intimidate you. Instead, learn to work through them and they aren’t that big of a deal in the long run if handled correctly.

So, um . . . Julia, I hope that this has answered your question. If you have a followup question or anyone else watching this has a question, feel free to leave it below this video or any of our other videos here on YouTube and we’ll definitely respond and we might just shoot a video like this one.

For more information on tax sale investing, make sure to video our primary site at TaxSaleAcademy.com.

Take care folks and make it a successful day! See ya!