Monday, September 15, 2008

It's Sheriff's Sale Season

You don't have to have a Rich Dad or pay some guy on infomercial for his secrets to begin investing in real estate. If you've got a good amount of money to invest such as 5, 10, 15 thousand dollars or more you could get in on the real estate investment game this fall through Sheriff's sales.

A Sheriff's sale is held by nearly every county throughout the country. Typically they take place during the last quarter of the year. The sales are actually auctions on properties that have outstanding tax liens. Every state has different rules around Sheriff's sales. In Colorado the auction is not for the property, but for the lien.

Here's a simplified explanation of how it works:
A property owner doesn't pay their taxes, sometimes for many years. The County puts a lien on the property. Once each year the Sheriff's office pulls together a list of properties and puts the lien up for auction. The winning bidder pays the amount of the property and usually a nominal fee based on a percentage of the lien. The property owner still has another chance to keep their real estate by paying the taxes within 3 years. If the taxes are paid during the 3 years the lien holder (that winning bidder) gets their money back, plus interest. If the owner does not pay the taxes within the time period, the lien holder keeps the property and is free to do as they wish. At this point any other liens against the property are wiped clean. That means the new owner is not responsible for any previous mortgage or other loans. The County lien takes precedence.

So the winning bidder usually wins all around: they either get the property or they get a return on their investment.

Sounds simple, right?
This is NOT something I'd recommend jumping into. It's kind of a balance when it comes to weighing risks. When the economy is good there are less quality properties available, but resale is favorable. When the economy is bad more properties may be available for bidding, but resale is more difficult. And remember it will be three years before you can think about touching the property--you can't improve it or even mow the grass.

Bidders are professionals.
Auctions can be overwhelming for first timers. Know the requirements before you attend. You're likely to need either cash, cashier's check, money order or sign for a direct transfer from your checking account. Many sales require that you pre-register as a buyer. And of course you must know what you want to bid on before the auction. Most counties publish lists of properties up for auction. Some are online (like Jeffco) others are given out only to registered bidders, and some use the old method of publishing lists in the local paper. You should always set your maximum price before the auction. You can drive buy or even use Google maps to look over the properties you might be interested in.

If you're thinking of participating you'll want to do some research first. Here are some tips:

  1. Don't pay for lists of properties. These are provided free from the county.

  2. Don't pay large amounts of money to "learn" how to buy these properties. I recommend this book The Complete Guide to Real Estate Tax Liens and Foreclosure Deeds by Don Sausa

  3. Do check out the JeffCo Sheriff's web page and attend their informational seminar. What you'll learn there can apply to any Colorado tax auction.

  4. Try to attend an auction as a spectator first. Sometimes this is not allowed because they become over crowded or are only held online. However, some counties will allow spectators as standing-only attendees, saving seats for bidders.
Be sure to review your prospective list, since there's a chance you could become the owner free and clear. Is it deemed unfit for development? Is it a dream mountain property? Or just a money-pit?

Some important dates:

JeffCo auction October 23-27 (held online only, no in-person bidding)

Boulder County Tax Lien Sale is Friday, December 5th

Adams County sale is held in November, specific date TBA

Weld County held only online date for October TBA

Denver County held only online date for October TBA

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