Tuesday, May 17, 2016

Guide to Purchasing a Property Tax Lien in Boston

How do I purchase Property Tax Liens in Boston?

The condo building development craze in Boston is still going strong in 2016. New condo buildings are being erected and buyers of condo units are attracted to the potential long-term return on investments. It's easy to get caught up in the hype of the numbers game, but before closing on a condo purchase with a lien, you need to do thorough research.

This article will provide you with the Boston property management fundamentals for dealing with condo unit owners who are buying property and refuse to pay common monthly expenses or if you, yourself, are buying the property with priority tax liens.

What is a property tax lien?

Put as simply as possible, a property tax lien is a legal hold put on a property due to outstanding debts or legal issues. This hold prevents the property from being sold or refinanced until the issue is resolved. This lien could be placed on the property owner's tax title account once they are delinquent on monthly condo fee payments, or once the property has been foreclosed.

The government auctions these tax liens, because they would rather get their money back than track down the property owner for the issue or money. Eventually, the property owner will have to pay back the lien - to you! And the benefit is that you will have accrued a percentage of interest for owning that tax lien as it accrues interest over time, just like a savings account in a bank.

If you are a property owner, prevent legal issues by enlisting accredited Boston property maintenance and emergency support to manage your property.

How do I Purchase a Lien at Tax Auctions In Massachusetts?

Thr primary way to purchase a lien on a home is by bidding for a condo at a tax sale, or a tax deed auction. You must pay cash and you will inherit all the risks and associative problems of that legal responsibility when you purchase a tax lien certificate.

When you do your research, pay special attention to the property tax costs and whether the previous owner has some outstanding tax debts owed on the condo.

If you are going to buy a property at a tax auction, be certain about what type of auction you made the purchase at, in order to know your rights and responsibilities.

What kind of interest can I earn from purchasing a tax lien in Boston?

The percentage of interest varies greatly, but interest could reach up to 36% for return on your investment. The Massachusetts Assessing Department sends "ownership information to the Collector -Treasurer, and the Collector-Treasurer mails out quarterly property tax bills on July 1, October 1, January 1 and April 1." - City of Boston

In Massachusetts, tax payments are due within 30 days of the billing and accrue at an interest rate of 14 percent. Priority liens are imposed on the property every quarter of the homeowner association or condo association's fiscal year, and if the taxes are not paid by the end of the fiscal year (June 30), the interest rate jumps up to 16 percent.

What Additional Fees may be Included In a Tax Lien Purchase?

A recent court ruling in the Drummer Boy Association, Inc. vs. Britton case on March 29th upheld what's called a "super-priority lien" that allows a Condominium Association (COA) to extend a lien for longer than a single 6 months period (this had been in effect since 1992), to cover successive 6 month periods. The case is a win for Massachusetts condominium associations, which will sustain future economic stability for one of the remaining statutes of affordable housing in Massachusetts.

Even with this great news, there are still a ton of risks associated with purchasing a priority lien. These mystery charges could all be rolled into the single lien, depending on state laws. In Massachusetts, a COA is allowed to roll the following charges into the super-priority lien:
  • legal fees from the court case to make the decision
  • collection fees outstanding
  • estimates of the past due total cost
  • expenses incurred from malpractice of the landlord or tenant
  • late fees and miscellaneous fees that have been incurred to the date
 Before investing in the property, it would be wise to contact a real estate attorney for assistance.

Responsibility after Purchasing a Tax Lien

If the taxes are not paid after six months, the property is subject to foreclosure. If you purchase a tax lien at the auction, you are not the owner of the property - you are only the owner of the tax lien.

The property owner will owe the taxes plus the interest on the lien to the lien holder. Therefore, you do not need to pay the homeowner's association fees past due. If you purchase a property at a foreclosure auction you are liable for all outstanding liens against the property you purchased.

Final Thoughts

Tax liens tend to be very complex, so always conduct diligent research prior to making an investment towards a new property, or a tax lien. If you are looking to accrue payments via interest from another buyer, then you can make a substantial profit from the sale. Or if you continue to keep the property, the value of the property will certainly appreciate in the Boston housing market, which continues to boom at an all-time high.

Have you thought about investing in a property, or have you ever dealt with being delinquent on payments to your COA or HOA monthly fees? Tell us your thoughts.