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.

Court of Appeals: Property taxpayer failed to prove it could sue DeKalb

Raw Properties Inc (RPI) owns commercial property on Snapfinger Road in DeKalb County. In 2010, RPI failed to pay property taxes on one of its properties. DeKalb County sent several delinquent notices to an old Decatur address for RPI, but the property owner had moved to Sparta. RPI notified DeKalb of its new address, but most of the late notices went to the Decatur address. The DeKalb County tax commissioner’s office says it also notified RPI of the delinquency by phone several times over the course of one month in 2011.  The taxes remained unpaid; the property was subsequently auctioned at a county tax sale. RPI was able to redeem the property later but had to pay the 20 percent premium for redemption. RPI sued tax commissioner Claudia Lawson’s office in Raw Properties v. Lawson.

The trial court ruled in favor of DeKalb. During appeal, DeKalb County argued that they shouldn’t have been sued in the first place, because tax commissioners serve as ex officio sheriffs, and different standards apply for sovereign immunity for sheriffs in cases of improper paperwork. The Georgia Court of Appeals sent the case back to the trial level for consideration of the sovereign immunity claim. The trial court found that DeKalb was immune in this case. In February, the Court of Appeals affirmed the trial court’s decisions, writing that RPI failed to prove that the DeKalb County tax commissioner’s sovereign immunity was waived in this case.

While the original tax sale stands, the court left open the possibility that Raw Properties could still sue for damages through separate methods.

Although the decision isn't friendly to taxpayers, it serves as another reminder that, generally speaking, failure to receive a tax bill does not relieve you of your obligation to pay. Property ownership and its ensuing tax liability are not responsibilities to be taken lightly under Georgia law.

Recap of Decatur’s tax sale

Deputy Police Chief Keith Lee presides over Decatur's 2015 tax sale

During the City's annual tax sale on Aug. 4, 2015, the Revenue Division auctioned 13 tax deeds to satisfy delinquent taxes owed. Four of the properties were bid on by investors, five were bid on by the City for potential greenspace, and four properties received no bids and will remain on the City's delinquent list. No owner-occupied homes were among the properties auctioned.

The City's collection activities are an exhaustive process lasting at least seven months and involving at least seven different attempts to notify the property owner of the repercussions for nonpayment. Tax sales are a crucial component in maintaining the City's 99.9 percent collection rate for real property taxes.

Unpaid attorney taxes for 2014 are now considered delinquent

Each attorney practicing in the City of Decatur is responsible for a $425 annual occupational tax. The deadline for the 2014 lawyer tax was December 30, 2014, with a grace period for penalties and interest through March 31, 2015. Our Revenue Division has attempted to collect payment on all accounts through invoices and reminder notices, but several lawyers still owe the tax. The 2014 debt is now 90 days overdue. The Revenue Division has now added a 10 percent penalty to the amount owed for 2014. If this message pertains to you, please contact the Revenue staff at 404-370-4100 to confirm the current amount due and remit that amount no later than April 30, 2015, to prevent the accrual of additional monthly interest and escalated collection activity.

No properties sold at Decatur’s tax sale

Decatur conducted a tax sale yesterday for delinquent property taxes owed for 2013 and prior tax years. By the time of sale at 10:00 a.m., the only properties left were seven land lots of various size, quality, and accessibility. No buildings or homes—either occupied or vacant—were put up for auction. The number of delinquent properties by the time of our sale was consistent with the number auctioned over the past couple years.

Four potential bidders attended the sale at City Hall, but made no bids, meaning that the taxes for these lots are still owed and there will be no change of ownership at this time. Generally, buyers don’t want tiny land lots that cannot be easily built on (although neighboring property owners are sometimes interested). The minimum required bid is the amount required to pay off the back taxes and collection fees owed. If there had been any bids, the buyer would have had to pay the taxes, then we would have filed a tax deed on their behalf, and the original owner would have had a year to redeem the property from the tax sale buyer.

Contrary to popular belief, the seven properties do not automatically transfer to ownership by the City now. The properties remain on the tax rolls under the existing owners’ names, and the parcels can be included again in future county or city tax sales.

Though unpleasant, the deadline of a scheduled tax sale is the only thing that will ensure payment by certain property owners, so the tax sale is a crucial component in maintaining Decatur’s 99.9 percent real property tax collection rate.

Open letter to prospective tax sale bidders

Decatur’s annual tax sale is scheduled for August 5 at 10:00. As part of our delinquent collections processes, we are able to provide a list of properties scheduled for tax sale and balances owed upon request to interested parties.

However, we are unable to advise you on the quality or characteristics of the properties for sale, or potential financial or legal issues that may arise as a consequence of you bidding, purchasing, or losing a property at one of our annual tax sales. Tax sales conducted by the City of Decatur are “buyer beware” events.

Redemption procedures are governed by state law as follows:

§ 48-4-40.  Persons entitled to redeem land sold under tax execution; payment; time
Whenever any real property is sold under or by virtue of an execution issued for the collection of state, county, municipal, or school taxes or for special assessments, the defendant in fi. fa. or any person having any right, title, or interest in or lien upon such property may redeem the property from the sale by the payment of the redemption price or the amount required for redemption, as fixed and provided in Code Section 48-4-42: (1) At any time within 12 months from the date of the sale; and (2) At any time after the sale until the right to redeem is foreclosed by the giving of the notice provided for in Code Section 48-4-45…
§ 48-4-42.  Amount payable for redemption
The amount required to be paid for redemption of property from any sale for taxes as provided in this chapter, or the redemption price, shall with respect to any sale made after July 1, 2002, be the amount paid for the property at the tax sale, as shown by the recitals in the tax deed, plus any taxes paid on the property by the purchaser after the sale for taxes, plus any special assessments on the property, plus a premium of 20 percent of the amount for the first year or fraction of a year which has elapsed between the date of the sale and the date on which the redemption payment is made and 10 percent for each year or fraction of a year thereafter. If redemption is not made until more than 30 days after the notice provided for in Code Section 48-4-45 has been given, there shall be added to the redemption price the sheriff's cost in connection with serving the notice and the cost of publication of the notice, if any. All of the amounts required to be paid by this Code section shall be paid in lawful money of the United States to the purchaser at the tax sale or to the purchaser's successors.

If you have further questions about redemption or any other aspect of the tax sale process, I strongly encourage you to consult with an attorney experienced in such matters. You can access a list of local attorneys by going to www.gabar.org, entering “Decatur” under Member Directory, and clicking Search. There are many fine attorneys in Decatur who are knowledgeable about the applicable statutes.

A look behind the scenes in the lead up to a tax sale

The trend in Decatur over the last several years has been that about 95 to 97 percent of real property taxes are paid by the end of the 2nd installment grace period in early January. We collect the remaining 3 to 5 percent owed between then and early August.

Several steps occur between January and August to collect on the taxes that are owed for the prior tax year. Shortly after the grace period ends, my office sends out what we call “courtesy notices” to property owners with past due accounts. It’s considered a “courtesy” because sending these notices is not required by law. Of the 3 to 5 percent that is owed, about one-third of past due taxes are paid on the basis of these courtesy notices.

Around February we send an “Intent to FiFa,” to the property owner, which means that we intend to set a lien in 30 days if the taxes have not been paid by then. About another one-third of the past due accounts get paid after these “Intents” have been sent.

When we actually do set the liens and file them with the DeKalb County clerk of superior court, we send levy notices to the property owners. We call that “Stage One,” and accounts begin accumulating execution fees beyond the normal penalties and interest owed.

Later on in the spring, our delinquent collections partner, Government Tax Solutions, begins conducting title work on delinquent parcels. They determine who may have a security interest in the property apart from the owner, such as a mortgage company. Typically in June, “Stage Two” notices are sent to the property owners again and to those creditors.

In July, we advertise the remaining delinquent properties in the Champion as required by law. We also put up signs on the actual properties themselves. A final 10-day notice goes out to the property owner.

On the first Tuesday in August, we have a “tax sale.” We do this in City Hall—not on the courthouse steps like DeKalb County does. By this point, we normally have about 10 or fewer properties remaining, which are generally vacant properties and small tracts of land. The tax sale is an auction-style event at which the minimum bid to acquire a property is the amount of back taxes owed. The winning bidder has to pay off the back taxes in full with certified funds (cash or cashier’s check) by noon that day. The original owner of the property has a year to redeem the property (to buy it back) with a premium.

The time period between Stage One through the day of the tax sale itself is when Decatur’s Revenue Division collects the remaining one-third of the 3 to 5 percent of taxes that weren’t paid by the original deadline, bringing us up to a 99.9 percent collection rate on real estate property taxes for the prior year.

This year, we’re seeing the same basic pattern in delinquent volumes and the timing of payments that we saw in 2013 and 2012. This year’s tax sale is scheduled for Aug. 5 at 10:00 a.m.

Property tax proposals to watch before the General Assembly adjourns

Dozens of property tax, sales tax, and motor vehicle tax proposals were introduced in the Georgia General Assembly during this legislative session. Only a few have survived as we near the last final days of the legislative session. These property tax and delinquent collections bills have been passed by at least one chamber of the General Assembly already, and will become law if approved by the other chamber over the next week and signed by the governor afterward. Several of the measures are intended to provide more fairness to taxpayers, but there’s not an overall theme to the legislation. Unlike tax proposals during the last couple legislative sessions, most of these bills are pretty narrow in scope. A brief description of each bill follows along with my own thoughts on how these may affect Decatur.

HB 69—Allows for the collection of homeowner, condominium owner, or other property owner association dues in the redemption price after a tax sale.
What this means is that if Decatur (or any other city or county) sells a property during a tax sale, the original owner still has a year to pay to redeem the property from the tax sale purchaser, but would now also be required to pay off any dues paid toward the property between the tax sale and the redemption date as part of the total redemption amount.

HB 412—Authorizes tax officials to provide electronic billing for property tax bills and delinquent notices and adds certain e-billing standards.
Some county tax commissioners in Georgia, such as Walker County, are already providing taxpayers the ability to “go paperless.” This bill puts certain standards in place for tax e-billing, including putting the words “STATUTORY ELECTRONIC SERVICE” in the subject line of emails. As Decatur considers launching e-billing during FY14-15, we would need to adhere to this standard if approved.

HB 819—Requires tax officials to carry out further due diligence steps to contact a delinquent taxpayer prior to transferring a tax execution (lien).
Before a tax execution could be transferred, the tax official must conduct a due diligence search using phone directories or Internet databases to identify the property owner’s most current contact information. The City of Decatur does not sell or transfer liens like Fulton County does, so this bill would have little impact here. Nevertheless, more thorough due diligence searches are in the interests of everybody, because it ultimately helps reduce the number of severely delinquent accounts.

HB 954—Adds some criteria to the calculation of fair market value by tax assessors such as whether the property is rent controlled or otherwise eligible for income tax credits.
This could have some affect on DeKalb’s assessments of certain multi-family housing units.

SB 293—Creates a misdemeanor charge and $1,000 fine against anybody at the board of tax assessors who fails to provide certain information requested by taxpayers regarding their assessment. The bill also expands the definition of distressed properties that could further reduce assessed property values in their vicinity.
This is the first bill I’m aware of that would impose individual fines and penalties on tax assessors. The intent is probably to assist taxpayers during the appeal process. Decatur does not assess property values but this legislation would affect the DeKalb assessors and local taxpayers seeking information from them.

SR 783—Provides for a referendum to amend the state constitution to stop the state from levying any property taxes.
The state portion of your property tax bill has undergone a gradual, legislative decrease since 2010 and will no longer be levied at all by 2016. This resolution would make the phase-out moot by prohibiting state property taxes in the constitution. This would not affect your city tax bill either way, because the state always collected its portion with the county billing. You would see a slight decrease (a few dollars) in your county bill either way since the state portion has already been phased out.

HB 390 pertains to sales taxes in DeKalb County for transportation projects.

HB 69, 412, 819, and 954 passed unanimously or near unanimously in the House, while SB 293, SR 783, and HB 390 each have opposition.

Homeowner associations crackdown on delinquent accounts

Homeowner associations have become more aggressive in the last few years delinquent collections on unpaid fees. A recent Reuters article highlighted a homeowner association in Kentucky that foreclosed on a homeowner for $288 in unpaid fees. The now former homeowner rents the house that she lived in from the person who bought her foreclosed property.

The article mentions that the woman received 30 notices in the mail from the association. One issue that we run into as a taxing authority is that a few delinquent taxpayers like simply ignore the bills or letters that they receive, even if language used gets more severe with each mailing.

That is part of the reason why we don’t limit ourselves to regular mail. Sending certified mail, setting liens, notifying mortgage companies, making phone calls to owners, advertising delinquent accounts in The Champion, and physically posting a notice on the property on a wooden stake prior to the tax sale are methods that we use to try reaching property owners before the delinquency reaches a tax sale scenario.

I’m not sure what methods homeowner associations are using besides mail to get the attention of delinquent owners, but as a best practice I would suggest that a variety of methods before foreclosure, which should be a last resort.

City sends out 700 reminders

In an effort to notify property owners of any past due property tax balances from 2012 or earlier, the Revenue Division of the City of Decatur mailed out about 600 notices to owners with unpaid balances this week.  Penalties and interest accrued on unpaid balances since our payment grace period ended on January 7.  We mailed out the original bills October 2012.

The City is also sending invoices to about 90 local attorneys who have not yet paid their 2012 occupation taxes.

If you believe that you already paid, please call us at 404-370-4100 so we can rectify the situation.  To ensure the best service possible, please have a copy of your tax bill on hand when you call.

Attempting to collect back taxes due by sending these notices is vital part of upholding the City’s 2010 Strategic Plan, Principle C, by practicing good fiscal stewardship.  The unpaid bills represent about $1 million due to the City and the school system, which is slightly less due than normal for this time of year.

What are business personal property taxes?

In addition to real estate property tax, Decatur bills for taxes owed on personal property such as marine vessels, aircraft, business inventories, office or work equipment, furniture, or fixtures. In 2009, personal property tax bills were calculated by multiplying the assessed property value by the city’s combined millage rate of 32.935. Bills were mailed in October and were due by Dec. 21, 2009.

The property value is determined from a Taxpayer’s Report of Personal Property filed with the DeKalb County Board of Tax Assessors by the owner or the owner’s agent. If no report was filed, the value was based on an on-site audit or review of the previous year’s report or other related information.

State law requires personal property taxes to be based on the residency of the taxpayer and location of the personal property as of January 1 of each year. Personal property owned on that date must be reported and listed for assessment by March 1. Taxes must be paid regardless of any change in the residency of the taxpayer or disposition of the property later in the year.

If the DeKalb County Board of Tax Assessors tells us that you were a resident of the City of Decatur on January 1, or maintained a business located in the City of Decatur on that day, and you are liable to pay the full amount of personal property taxes as billed for the complete year.

Our office recently mailed out notices to individuals and businesses who owe personal property tax for 2009 and prior years. Interest will continue to accrue on unpaid balances by 1 percent monthly. If you received a late notice and have questions about your bill, please call us.

Update on a Bank of America check...

To recap developments from yesterday, Bank of America created a property tax check on behalf of some of their Decatur borrowers on Dec. 17 that my office never received. After several phone calls between my office and Bank of America yesterday and today, I was able to open a formal “research request” with Bank of America’s tax department this morning.

One of their tax specialists informed me that he was submitting the request to higher levels within his department to research and reissue payment for the affected customers, with an estimated completion date of February 3. Bank of America should pay the penalties and interest, and the late payment would not affect their customers’ escrow accounts.

We do not maintain lists of individual property owners in Decatur who escrow with Bank of America. So if you received a delinquent notice from my office this week, and you escrow with Bank of America, please call us at 404-370-4100 so we can update our notes on your account and remove your home from our collections list.

My apologies to any resident who has been affected by this situation. Thank you for your patience while Bank of America works to resolve it for us.

Tax notices mailed

In an effort to notify property owners of any past due property tax balances from 2009, the Revenue Division of the City of Decatur mailed out 603 notices yesterday to owners who either made no or partial payments. Penalties and interest have been accruing on unpaid balances since our payment grace period ended on January 7.

We mailed out the original bills in two installments in April and October last year.  Why do some bills go unpaid?  Sometimes it involves an unwillingness or inability to pay, but in several instances the delinquency is due to a simple, temporary oversight.  Occasionally these bills are overlooked by new owners who purchased a property within the last several months who thought everything was “handled at closing.” We also run into owners who just changed their mailing address, but we sent the bill to the most recent address we had on file.

Periodically we run into issues with our residents’ mortgage companies. For example, we have received several calls today (and a note forwarded from Geoff Koski, publisher of Decatur News Online) from property owners who received a late notice from us, but who were told by Bank of America that their taxes have been paid.

We received a large check from Bank of America on Dec. 21 that covered 119 of their Decatur accounts, and we posted that payment in December to all the accounts that the bank listed. We did not send late notices to any customer whose account was paid by that Dec. 21 check.

However, we did not receive any other major checks from Bank of America in December or January for any of their additional customers. We have been communicating with Bank of America to find out what’s going on. No check has cleared our bank with the check number, check date, or check amount that Bank of America has provided.

A final note--if you’ve received a late notice in error, please accept my apology. Your payment may have arrived just after we printed out the bills. If you believe that your lender, our office, or a bank somewhere in between, has made an error, and that your taxes are actually paid, please call us immediately at 404-370-4100 so we can start to rectify the situation. To ensure the best service possible, please have a copy of your tax bill on hand when you call.