Review of helpful book on tax lien and deed investing

The Complete Guide to Investing in Real Estate Tax Liens & Deeds, Revised Second Edition (2015) by Alan Northcott is a how-to guide for people interested in investing in tax sale and tax lien properties. Northcott, a tax sale investor himself, shows how liens, tax deeds, and tax sales work in different states and local jurisdictions. The book provides many tables and charts allowing investors to compare redemption periods by state and the variety of premiums associated with redemption, in other words, the different potential returns on investment (ROI). These charts allow investors to make more informed decisions about which jurisdictions best suit the individual investor’s needs.

As a property tax administrator, I felt that the book was also helpful to put our own practices as a municipality into a broader context. For example, I did not realize than many jurisdictions require investors to register before they can bid at tax sales. Also, I did not fully realize that some states are “tax lien” states, meaning that they authorize local governments only to sell tax liens, not the underlying deed, while other states are pure “tax deed” states, where ownership immediately transfers from the delinquent owner to the successful bidder after a tax sale. The book describes Georgia as one of 11 “hybrid tax deed” states, where ownership is transferred if the original owner does not redeem the property within the required time period. I also found it useful to see which states are most closely aligned with Georgia’s practices. Tennessee appears to share several traits with Georgia’s delinquent collections and tax sale law. This information could be helpful when building peer relationships in other states. In property tax world, opportunities for networking and professional development exist within states, but not usually across state lines since there is no national property tax.

One aspect of the book I didn’t agree with was its assertion that most property owners who lose their properties at tax sales redeem their property, resulting in predictable returns on investment for tax lien and tax deed investors. In my experience in our location, that is not the case. To illustrate, picture a property owner who cannot pay $5,000 in back taxes. The property is auctioned at a tax sale for $100,000. The redemption amount in Georgia would be $120,000. The original owner receives the excess funds from the sale minus the taxes ($95,000). Now the original owner is $25,000 short from the redemption price. If the owner couldn’t come up with $5,000 to prevent the tax sale in the first place, the owner will rarely be able to come up with $25,000 to redeem their property. Northcott’s statement may be correct in the context of states with smaller premiums, but investors should be aware of that may not be the case everywhere.

An unexpected bonus about 85 percent of the way into the book is a very helpful chart and explanation of “first liens.” In order to foreclose the right to redeem on a property, the holder of a “second tax lien” has to pay off the first lien. Somebody with a third lien would have to pay off the first and second liens. Mortgages and other private debts constitute lesser liens than tax liens. Lesser precedent liens and mortgages do not have to be paid off in order for the holder of a first lien to foreclose the right to redeem. This is an essential concept to understand in Georgia, where case law has indicated that a creditor who redeems a property previously sold at a tax sale obtains a first lien or “super lien” that trumps other liens.

I recommend this book to people considering tax sale investments and to property tax professionals involved with delinquent collections.