Buying a Tax Lien – Understanding the process and obligations.

There are three kinds of tax lien sales in Illinois; Annual, Forfeiture and Scavenger Sales.  The annual and forfeiture sales are similar in that the buyer purchases the tax lien by paying the unpaid taxes. A Scavenger Sale is different. At the Scavenger Sale, taxes on properties with three or more years of delinquent taxes are offered for sale. Taxes are sold for cash bids. The amount bid may be less than the total amount of taxes and interest due. The highest bidder wins a lien on the property and can obtain the deed after the requisite period of time passes.

The Annual Sale happens every year, generally in the fall or early winter. Parcels as to which the previous year’s taxes are delinquent are offered for sale.  Counties are required by the statute to publish the list of delinquent properties in a newspaper in advance of the sale. You may also obtain a list of the properties from the county for a fee.

Many counties have now switched over to electronic bidding which takes places in a variety of different methods using different vendors and processes to conduct the bidding. Each county will provide information regarding the timing, place, and method in which the bidding will be conducted. Counties generally require some form of registration before the sale, and some counties may require a substantial cash deposit by first time buyers to ensure the properties won in the auction are paid in full. Either way, there is generally a $500 dollar fee for registering which is deducted from your tax sale bill at the end of the auction or returned to you if no liens are purchased.

Due diligence and a strategic plan are necessary for a successful tax lien investment purchase. While it may be tempting to bid on properties sight unseen, some level of due diligence is advisable. It important to know that if you are the winning bid on a tax lien but do not submit your payment for the lien, the county may still hold you liable for the purchase and any difference between your bid and the rebid amount.

The county may list properties by address and PIN (Property Identification Number). Caution is warranted as the address listings may not be accurate. You are buying the tax lien on a PIN not a mailing address. To avoid confusion, you should identify the properties by PIN using the county GIS system.  You should also visit the property in person and investigate the state of the property and its surroundings. Potential value in the property is tied to its previous uses and its location. Walk the property, check for evidence of previous commercial uses, and make sure you know what you are buying. Remember to check for visible evidence of easements which may affect the desirability of the property. The more due diligence you do, the better prepared you will be when you purchase the property.

Whether visiting the property in person, or doing a more comprehensive check on the property, it is important you have a firm idea of the investment strategy before bidding on a property. Remember, you may end up with an unsellable property and a complete loss of your investment unless you understand the property, the law, and the real estate market.