Tax lien sales help county budget
Flathead County got a nice little windfall last week.
Actually, $643,710, to be exact.
The money came from 250 tax liens purchased by private investors. Tax liens are placed on Flathead County private properties that are behind in taxes. Once a property owner becomes delinquent on county property taxes, the county assumes a tax lien on the property, or the county sells the tax lien to a third party, who pays off the back taxes.
Last week three investors paid those back taxes.
A company from New Orleans paid $336,360 and was the largest investor, while a Kalispell investor paid $301,750 and an Ohio investor paid $5,600.
The liens remain on the properties until the property owners pay all back taxes — plus 10 percent interest — to the lien holder. If the money isn’t paid in three years, the lien holders may file for a property deed.
The sale of tax liens has become very popular in Flathead County, county treasurer Adele Krantz said. One reason for their popularity is that the properties tend to maintain their value, she said, and investment interest is stagnant.
The sale of tax liens has become increasingly popular with investors during the recession. With interest rates on certificates of deposit less than 1 percent, the tax liens offer a safe form of investing, backed by collateral of property that is likely to increase in value.
Last year was the first time that investors bought tax liens on properties before the county had assumed its own liens. The lien purchases allow the Flathead County treasurer’s office to clear up back taxes, and help pay for ongoing expenses of the county, such as schools, law enforcement, and other county functions. The sale of the liens also helps the county reduce its outstanding tax liabilities. Prior to lien purchases becoming popular, Flathead County had to budget for a 7 to 10 percent tax delinquency. Now, that delinquency rate is around 5 percent, according to Krantz.
This year was the first time in her 31 years at the county treasurer’s office that the county’s outstanding personal real estate property tax liabilities were less than $1 million, chief deputy Sue Waggener said. Delinquency rates spiked in the 1980s, and in 1987 the Montana attorney general declared that private property owners could not slide longer than three years without paying property taxes to the local county government. “The county never got anywhere in curing delinquencies” before that, Waggener said.
Flathead County’s total tax roll — property taxes due the county — is $147 million.
People are more diligent about paying their tax bills, she said. “I think that’s because of the purchase of these tax liens,” Waggener said.
K and J Investments LLC was the single local investor at last week’s tax lien sale.
The Kalispell company is in its fifth year of buying Flathead County tax liens. The company’s owner, who requested not to be identified for this article, said it’s better for the delinquent property owner to have a tax lien purchased by a private investor, than have Flathead County own it. If the county owns the tax lien, the county charges 10 percent interest plus an additional two-percent penalty. Also, if the county owns the tax lien and the property owner fails to pay the back taxes in three years, the county must sell the property. A private investor doesn’t have to sell the property on the open market.
But most investors just want the 10 percent interest due on the back taxes they paid — or will pay, over the course of owning the tax lien. If the property owner does not pay off the back taxes in three years, the owner of the tax lien may file for a property deed. If a private investor does not purchase a tax lien on a delinquent property, the county automatically gets a tax lien.
With a private investor, there is leeway.
A private investor doesn’t have to sell the property for fair market value and can work out a deal with the property owner.
The owner of K and J Investments said he’s had two cases where the property owner has approached him to work out a payment arrangement for the back taxes, rather than let the property go.
“I’m only really interested in the interest,” he said. “I’m not interested in getting people’s property. And I’m not trying to cheat anyone out of their property. They’re much better off having me holding the property than the county. You have at least a chance for more rights if someone holds it other than the county. If the county holds it they have to sell it for fair market value. At least if an individual holds it, you can bargain with them.”
Most of the time the liens get paid off. However, there are still 56 tax liens from 2010 that have not been cured, and could result in a property lien.
The Kalispell investor said he purchases tax liens on various types of property —land, rentals, private homes. However, he avoids properties with improvements on state lands, or properties that may have large special improvement district fees attached to them. Some properties, such as those in subdivisions, have SIDs that demand more money than the property.
In the four year’s he’s been buying tax liens, he’s never had to repossess and sell a property. The tax liens always got paid off.
The tax lien may be redeemed, or paid off, at any time in the three-year period that the third-party owns the lien. The Kalispell investor said he’s had tax liens released after a month of buying them. “I would get a check for $8.50 and I think ‘my word what I had to do to make $8.50,’” he said.
During the three years that a third party owns the tax lien, the third party is liable for the ongoing taxes and must pay them in full before they can file for a property title. In the interim, the property owner must make any tax payments to the third party.
The Kalispell investor said he’ll continue his system of purchasing tax liens, at least until interest rates on secured investments rise. “If you can buy a CD at 6 to 8 percent this isn’t worth all the trouble,” he said.
July 2014 Flathead County
Tax Lien purchasers
Jeffery Showell
$5,600
MTAG/ATCFII MONTANA LLC $336,360
K & J INVESTMENTS $301,750