Tax liens are monetary restraints that the government imposes on individuals who fail to pay their taxes. These constraints limit their capacity to purchase or sell property, as well as hinder their ability to generate profits from real estate transactions.
This protects banks and other property owners who have invested in the property. It ensures that they are protected until the person pays their taxes or the property is taken away.
If there are foreclosures or defaults, this is the perfect time to capitalize on the investment prospects in Maryland. Regardless of your lack of experience in the real estate sector, there are methods available for you to benefit from the possibilities presented by tax liens.
First, Know the Tax Lien Laws
Before you can cash in on the opportunities of tax liens in a real estate investment, you have to know what the applicable laws are in Maryland and Baltimore. You need to study the laws of your state of residence or the state in which you plan to purchase the property before completing the transaction.
A poor understanding of tax liens and/or how they work in Maryland can lead to lost profits and even stiff fines. Remember, you want to keep your bank account in the positive side at all times and avoid any legal troubles.
In addition to the state laws, there may also be city or county ordinances that dictate what you can do regarding tax liens. Some cities, for example, require that you have a real estate license in order to get involved in the transaction while others do not encourage private lending or private money transactions.
In Maryland, Your property taxes are due without interest as of July 1 of each year. The taxes are overdue on the following October 1, and interest accrues after that date. Each County in Maryland and Baltimore City maintains the tax accounts for real property located in its jurisdiction. If you do not receive your property tax bill in July, contact your County’s “Collector of Tax,” usually the treasury or finance office.
REDEMPTION BY OWNERS
The homeowner has the right to redeem the property at any time until the right of redemption is finally foreclosed by an order of the court.
The homeowner can prevent the purchaser from obtaining ownership by “redeeming” the property. Prior to action by the purchaser to foreclosure, the owner may redeem the property by paying to the Collector of Taxes the amount required for redemption. The purchaser or holder of a certificate of sale is not entitled to be reimbursed for expenses incurred within four months after the date of sale. After four months, these additional fees may be included in the redemption amount. The longer the homeowner waits to redeem the property, the more expensive the redemption amount becomes.
If the redemption rights are exercised after an action to foreclose and there is any dispute, the person redeeming may apply to the court to fix the amount necessary for redemption. Also, in case of a dispute regarding redemption, the Collector cannot accept money or redemption unless and until a certified copy of the order of the court fixing the amount necessary to redeem is filed with the Collector.
The person redeeming is required to pay to the Collector, the total amount of money necessary to redeem plus interest and subsequent taxes with related interest and penalties to the date of redemption.
During the period of redemption, the owner of the property has the right to continue in possession of and to exercise all rights to ownership until such time as the right of redemption is foreclosed.
Know Your Limits
Another important thing to know is how much you can afford to invest if you want to cash in on a real estate transaction that involves a tax lien. Remember, if you do start transacting real estate business involving tax liens, you are profiting from the interest on the tax lien that is placed on the property on an annual basis. You must report this amount on your personal income tax and there may also be fees associated with doing this sort of transaction.
Know how much credit you can extend to private investors and try to keep things as simple as possible when it comes to dealing with tax liens. If the person whom the lien is held against does not pay their amount due, the property may revert to you. So make sure you are investing in a good property with resale value.
THE TAX SALE PROCESS
Any unpaid property taxes constitute a lien on the property from the date they are due until they are paid. A lien is a debt attached to your property, like a mortgage. County-specific local charges can be added to this lien. State law requires each County’s Collector of Taxes to sell these tax liens to collect delinquent taxes and other fees owed to the County. The tax liens are sold as “tax lien certificates” through what is called a “tax sale.”
The tax sale is the process where the tax lien certificates are sold at public auction to the highest bidder. Each County issues bidding rules for its sale. Once the lien certificate is sold, the County’s lien on the property passes to the purchaser.
Note: the unpaid debt and fees are sold at auction, not the real property itself. After the tax sale, the homeowner still owns the real property. The purchaser buys the debt owed and a right to foreclose on the property if the homeowner fails to pay off the debt within a limited time. After a tax sale, the homeowner can still “redeem” the property by paying off the debt owed in the lien certificate. But time is of the essence.
Learn More About Tax Liens!
Baltimore City, MD- Tax Liens
The annual tax sale process begins in the first week of February when the City mails a Final Bill and Legal Notice to the property owner of record at the address on file in the City’s real property database. The notice lists all of the delinquent City taxes and charges due through the last day of February. If the amounts that are due remain unpaid, then additional penalty or interest charges may continue to accrue for each unpaid item.
End of January – final tax bill and legal notices mailed out
End of February – last day to pay to avoid inclusion in first printing of tax sale properties in The Baltimore Sun in mid-March
End of March – second printing of tax sale properties, updated to reflect payment of liens/ removals
End of first week in April – letter mailed informing owners of tax sale
End of April – deadline for payment to remove from tax sale
End of first week in May – final update to tax sale list. Bid submission begins on City’s auction site.
Beginning of second week in May – acceptance of tax sale bids. Automatic bank debit of winning bids.
End of second week in May – assignment sale of liens not purchased at tax sale. Purchased at lien value and automatic bank debit of purchasers.
End of third week in May – first day to redeem tax lien certificates for tax sale properties.
Tax Sale Timetable
- March: The complete list of properties still eligible for tax sale is published twice in two newspapers of general circulation during the month of March.
- Early April: The City mails a second tax sale notice to the same property address during the first week of April. The amounts included in the second notice are due and valid until the last day of April, the last day to pay all of the outstanding taxes and charges owed the City to avoid tax sale.
- Mid-May: The annual tax sale is normally held during the third week in May.
- Late May: Redemption can begin. Redemption involves the owner, or an interested party such as a mortgage holder, reimbursing the bidder an amount of interest and other fees and costs. If a property is not redeemed by July 1, then the new fiscal year’s real property taxes also must be paid to redeem the property.