Introduction to Over the Counter Tax Liens
If you’re a tax lien investor, you might think you have to chase down liens at your local auction.
However, each auction usually leaves a few liens that investors ignored for various reasons or returned to the county because they couldn’t fund their purchase.
The good news is you can buy these liens with an over the counter strategy and receive excellent returns.
That’s where Tax Sale Resources comes in: to teach you to capitalize on such opportunities.
We’ve been immersed in the tax lien business for over thirteen years and work hard to bring investors the most accurate, updated information.
While we aren’t giving legal advice, we provide market insights to help scale your business and avoid pitfalls along the way. Now, on to the topic for today!
Over the counter tax liens, also known as otc tax liens, are those you can buy directly from the county instead of at an auction.
Over the counter tax liens are available outside of the typical auction for various reasons. For example, the winning bidder at the auction might not have the cash to back up their bid.
On the other hand, investors might have avoided the lien because it’s for a plot of land with a pile of rubble. So, it’s best for investors to thoroughly research the properties in question when pursuing over the counter tax liens.
However, the upside is the returns you can expect from over the counter tax liens.
Usually, you’ll receive the statute maximum return for your state. For example, you can expect to receive a 16% return in Arizona.
As a result, over the counter tax liens can be more lucrative than others you would bid on at an auction (if you do your research!).
Benefits to Buying Over the Counter Tax Liens
Maximal returns are just one of the advantages of over the counter tax liens.
Remember, over the counter tax liens allow you to circumvent the auction, meaning you won’t be outbid on the lien you want.
Instead, you purchase it from the municipality without other investors swooping in and taking it.
Likewise, you won’t be fighting against institutional investors with the financial weight to outbid others. So, over the counter tax liens offer a streamlined process for acquiring assets.
Additionally, tax liens redeeming before the auction can be an issue. In other words, you might take hours to research a property that’s scheduled at the next auction. Then, you get to the auction only to discover the owner redeemed the lien, removing it from the list. On the other hand, over the counter tax liens don’t have that risk because they have gone through the auction process.
Lastly, it’s crucial to remember that over the counter tax liens aren’t necessarily throwaway properties that other investors rejected.
Instead, they might be liens with high profit potential that the winning bidder couldn’t afford. For example, Florida requires bidders to put in a deposit for liens. Occasionally, an investor’s eyes will be bigger than their wallets, meaning they’ll bid too much and end up surrendering the lien back to the county because they don’t have the cash to follow through.
Then, the county sells the tax lien over the counter style because the auction is over. So, capitalizing on these create excellent investment opportunities for investors.
Cons to Buying Over the Counter Tax Liens
Although over the counter tax liens offer numerous advantages, it’s essential to consider the drawbacks.
While some over the counter tax liens might be from bids that fell through, it’s also possible that the lien is problematic. This possibility is why research is crucial whether you’re bidding at an auction or pursuing an over the counter tax lien. Tax liens can look amazing on paper (or online) and turn out to be a mailbox on an empty plot or a sliver of land on a street corner.
Therefore, doing your homework is a must: you might discover that investors passed by a particular over the counter tax lien for good reasons.
In addition, over the counter tax liens might not be readily available after the auction, depending on your state laws. For example, Indiana sends liens to a secondary auction, also known as commissioner sales, with a shorter redemption period. Then, if the lien doesn’t sell for the second time, it will become an over the counter tax lien.
As a result, your area’s over the counter process might make investing in these liens more arduous.
Hidden Risks to Over-the-Counter Tax Liens
The hidden risks of over the counter tax liens are related to why investors passed over them in the first place.
While a single-family home in superb condition might fall through the cracks from time to time, over the counter tax liens typically end up on the wayside because they didn’t meet other investors’ criteria.
For example, the home might be in horrendous condition despite pictures of a beautiful home from a year or two ago.
The lien might also have multiple parties with a financial interest in the property, such as a mechanic’s lien and a past inhabitant disputing ownership.
In other words, over the counter tax liens share similar hidden risks with liens you win at an auction.
You won’t know the potential issues unless you investigate the details first.
States that Have Over the Counter Tax Liens
Most tax liens states offer over the counter opportunities.
However, some states have a convoluted process for liens that investors don’t buy at auction. For example, Illinois sends liens to a scavenger sale with less stringent opening bid rules.
So, while the state doesn’t sell over the counter tax liens, it has a place for liens that don’t receive successful bids – it’s a matter of finding out the exact process. Therefore, understanding your state’s rules on over the counter tax liens is vital.
The Best Way to Find Over the Counter Tax Lien Lists
Searching for over the counter tax liens can mean communicating with your county about its stock of liens and the specifics of each.
However, instead of hunting for over the counter tax lien lists yourself, you can also use the Tax Sale Resources research tools to review almost 700 over the counter tax lien lists. Tax Sale Resources compiles over 1.4 million liens for 5,100 jurisdictions per year and updates its data regularly.
So, you can download the relevant data to guide you in your local search for the best over the counter tax liens. This way, you can access the information you need within minutes instead of waiting to hear back from your county office.
Steps-by-Step Guide to Buying an Over the Counter Tax Liens
Your process for buying over the counter tax liens will resemble how you buy liens at auction.
First, you must define your investing model. For example, do you want fixer-uppers because you’re handy and can fix them easily? Or do you go after vacant lots for their development potential?
Either way, the liens you pursue should fit your approach.
Second, you’ll get your hands on a list of over the counter tax liens. Whether you work with your county for information or use Tax Sale Resources, it’s crucial to review the liens for sale as quickly as possible so you can jump on the best deals.
Once you acquire the list, you’ll need to research the liens that catch your attention.
Remember, while not every lien is problematic, it’s critical to understand what you’re buying.
For example, you might end up purchasing a property that doesn’t have a clear title if you go in blind. Doing so can put you on the hook for thousands of dollars of municipal penalties, taxes, or even a hefty past mortgage.
Sidestepping these potholes is vital for successful investing.
Finally, you’ll purchase the over the counter tax liens after vetting them properly. Generally, you’ll contact the county or jurisdiction to make the purchase. You might fill out a form or use the municipal online portal to conduct the transaction.
Over the Counter Tax Lien Frequently Asked Questions
Are over the counter tax liens less valuable than auction liens?
Counties don’t take bids for over the counter tax liens. Instead, investors can purchase them directly, which can lower the price.
However, the lower price tag doesn’t mean less earning potential.
While over the counter tax liens may have more issues than others, they are solid assets for savvy investors willing to do their due diligence before purchasing.
How can you earn money with over the counter tax liens?
over the counter tax liens earn money like a typical tax lien: when homeowners pay delinquent taxes plus interest.
That said, over the counter tax liens usually provide the statute maximum, which is the highest rate your state laws allow for tax liens.
Therefore, an over the counter tax lien can provide higher returns than a lien won at auction.
Where are the best over the counter tax liens found?
Tax Sale Resources provides listings for current over the counter tax liens in over 5,100 jurisdictions nationwide. Our online research tools eliminate time-consuming communication with county offices and empower investors to act on opportunities quickly.
Buying over the counter tax liens (OTC tax liens) can be a lucrative investment strategy for tax lien investors.
While traditional auctions are the usual route for acquiring liens, over the counter tax liens present opportunities often disregarded or returned to the county by other investors.
In addition, while over the counter tax liens have risks, they can be valuable assets for investors willing to do their due diligence and make informed decisions. By leveraging the opportunities over the counter tax liens present and utilizing reliable resources for research, investors can maximize their returns and incorporate these liens into a successful portfolio.