Why Indiana Is The Best Tax Lien State

As another Tax Sale Season approaches in the State of Indiana, I am reminded of all the great aspects of investing in tax lien certificates here. I personally attend live and online auctions in multiple States throughout the year, and I often find myself comparing States. Sure each States' Real Estate market has its own story, its own boom towns and stagnant areas, its own legal advantages and disadvantages, but when it comes to Tax Sales, Indiana's system stands above the rest.

Marion County Tax Sale

The Statute- Indiana is a Tax Lien State. For a county to collect unpaid property taxes, they will issue a Tax Lien Certificate on a given property. The tax lien is sold at an auction once a year usually in September and October. The property owner has one year to redeem the lien with the county. The county handles all monetary interactions and communications between investor and property owner. Upon purchase of a lien, there are several "responsibilities" as a tax lien investor you must assume, however none are burdensome. We will discuss this in detail later. If the lien is not redeemed within one year, the lien investor can start foreclosure/petition the court for tax deed. There is NO secondary Tax Deed Sale. This process is typically 2-3 months. For example, if you bought a lien at auction in October of 2018, you could expect a tax deed in the mail in January 2020. Your bid price at the tax sale auction becomes the recorded purchase price of the property from the county. Your investment will have been this price plus some minor redemption period expenses incurred as part of your "responsibilities". Indiana has a Bid-Up auction style, which means that the price to purchase a lien increases until no bids are in competition. Two bidders competing creates a surplus, an amount over the minimum bid, until one wins out. Generally, you can still expect bids to end under market value. There is no lottery or rotational bidders. The Indiana State Statute provides for the following: A winning tax lien bidder is entitled to a 10% penalty or return on the minimum bid, 15% after 6 months. The surplus is earns just 5% interest per annum. If the property is of any value, expect the surplus to quickly exceed the minimum bid. There are so many great aspects of a One Year Redemption Period. States that have this short of a redemption period garner my full attention. As a Real Estate investor first, I must consider how long the property has sat neglected before the Tax Sale commenced, and how long it is due to sit in the same condition during the redemption period. You can expect the property to decline in condition during that one year period. Many of these properties are unattended before and after the Tax Sale. While one winter in the northern States could chance broken plumbing, a few winters guarantees it. The same goes for humidity and mold in the Southern States. It is my understanding that States that have a three year redemption period usually have more investors going after some type of compounding interest set by the State rather than the property investors. Organized Live Auctions -- I constantly observe online Tax Sales in Florida where I reside. Florida is a hybrid State, which means it has a Tax Lien Sale and a Tax Deed sale, and most of their auctions are now online. Becoming a winning bidder at the tax lien sale does not entitle you to a tax deed, it just entitles you to become the first bidder at the tax deed sale years later. Besides the numerous shell companies to win bottom bids (picked at random) in each online tax lien sale, you have owners of those companies in every country imaginable. When it comes to the secondary sale, the tax deed sale, foreign investors will pay near market value for Real Estate, all from the comfort of their living room in Israel or China. Indiana auctions, with the exception of a few counties, are still live auctions. This means you, or a representative, must physically be there. In Indiana, we see only a handful of out-of-state investors, and rarely one from outside the country. There are three notable results when it comes to live auctions. First, and most obviously, properties are generally not bid up (Indiana is a Bid-Up State) to market values. Secondly, smaller counties in the State may not warrant a paid representative to be there. Lastly, most liens purchased are from local investors who know their respective market, and you can expect the community to have a better chance of benefiting when a property acquired is renovated. Live auctions provide opportunities that online auctions cannot. You will still have the big investors/representatives with money winning a lot of bids, however so will those paying best attention to the auctioneer. I can attribute much of my early success in Tax Sales, to those opportunities that slipped by the big investors at live auctions. Those situations still occur today. At my last Tax Sale in SC, I witnessed an impatient auctioneer award liens at minimum bid to the first person to put their hand up. That auctioneer did not want the auction to extend into a second day. Late in the day, with the bidding crowd as exhausted as he was, the most energized and attentive won some great bids on great property. There are two main auction companies Indiana county governments employ. These companies do an excellent job for both the bidders and the county. They post updated tax sale lists constantly, they use top-notch auctioneers at the sales, and they are there to help anyone with questions long after the sale is over. Once you have been to a sale or two in Indiana, you will see that the auction day, no matter the county, is a streamlined process. By comparison, in South Carolina, each county has a completely different set of rules and processes on the day of the sale. If you do not call ahead with a list of questions about the auction process, expect some unscheduled last minute delays on the day of the auction. In addition, SC has many of its auctions on the same day each year, which can prove a nightmare to coordinate multiple bidders, while bidding yourself. Indiana's auctions are spread out enough over two months that employing 2 or 3 bidders could cover the whole State, with adequate time for due diligence & drive-bys. "Responsibilities" and the Redemption Period Window --- Once you become a winning bidder at an Indiana tax sale, you will not only receive a paper tax lien certificate but also some responsibilities. During the one year redemption period, you must perform a title search and notice all owners of record. It is highly recommended to use an attorney for this process. There is a certain time frame this MUST be done within. This cost is recorded with the county once incurred and added to the redemption amount of the lien. I usually perform this action early on in the process. The benefit is twofold: You get to learn more about the history of the property and its owners, and you are making the lien harder to pay off. Each county has a cap on these expenses and you can bet an attorney will charge close to that maximum. Again it makes little sense not to use an attorney for this. The cost will be reimbursed to you when and if the lien redeems. Otherwise add it to your investment in the property when you receive the deed. As a lien holder, you should also be proactive enough to pay the Spring taxes, which come due about six months into the redemption period. Like the legal responsibilities just stated, this amount can be added to the redemption price of the lien. Doing this will also benefit you in two ways: You will have avoided late fees when and if you acquire the property, and you earn 5% per annum simple interest on that amount. As a summary example, a property owner redeeming his or her property 9 months into the redemption period, will have to pay the minimum bid, plus a 15% penalty on that minimum bid amount, plus a 5% interest per annum on the surplus amount (the surplus is held by the county and remitted only upon redemption), plus the legal fees incurred, plus the Spring taxes and the 5% interest on that amount. A one year redemption period also gives you, the lien buyer, ample time to learn the local Real Estate market beyond what you knew going into the auction. It gives you time to learn everything you can about the property. Unfortunately, going onto the property is considered trespassing, but passing by the property throughout the year is highly recommended. This brings me to my last and possibly most important topic on Indiana Tax Sales. Managing Risk After the Tax Sale ---- I have made the case for why it is important to be proactive during the redemption period. The Indiana Statute had very strict guidelines for these responsibilities. This is also a time where you can learn everything about the property before taking it to deed. What happens if you find out something detrimental to the investment? What if a fire burns down the property? Indiana allows the right of self-redemption. This fact could be the single most important aspect in regards to risk management and investing in Tax Sales. At any point in time from the auction date to the last redemption day a year later, you as the lien buyer, can redeem the lien and exit the investment for a loss rather than go to deed. The amount to redeem (your loss) would be the same as if the owner redeemed, but you could at least retrieve your surplus. On bigger liens, where the surplus is tens or even hundreds of thousands of dollars, it can be worth losing the minimum bid amount to get back most of your investment. In South Carolina, you cannot self-redeem your tax deed. Only another party with an interest in the property can redeem the property. I have certainly heard the stories of big investors buying an additional smaller liens on a property just to get the right of redemption, but who wants to go through all that? Now to be fair, anyone can redeem the lien, and they could wait to the last day. To have some distant relative pay off the lien on the last day has happened to me more than once. That is just part of the game, and why I buy a lot of liens. The final days of the redemption period are critical. I recommend contacting your attorney to make sure everything is in order to file for petition. I also recommend driving by the property one last time. When the redemption period expires, you still have a 2-3 month quiet period to wait for the tax deed before you can legally enter the property. Issuance of Tax Deed and the State -----

Order for Tax Deed

If you are a true Real Estate investor, you know that the day you receive your Tax Deed is the day your real work begins. There are many paths to take at this point, and it all depends on your exit strategy. One thing I highly recommend, if the property is worth anything substantial, is getting a quiet title action done. While the tax deed grants you title free and clear of all liens and encumbrances, its important to solidify that statement a second time to get title insurance. What I have learned about Indiana, through my own conflicts with past owners, is that this State truly protects its Tax Sale investors. So long as you have followed the law every step of the way, there is little a prior owner can do to save their property. If, on the rare occasion, a judge sides with a property owner for a mistake you made, the investor usually is able to at least get a return of initial investment. This is a generalization, and I would consult legal counsel on these types of matters. I feel that Tax Sale investors are held in less regards by government officials in some other States. Usually these same States have certain Real Estate-related laws that protect the HOA or prior home owner more than the investor. In general, I think Indiana really respects its Real Estate investors and its Tax Sale process. In Closing ----- In conclusion I believe that Indiana is one of, if not the best, tax lien States. Whether you are a passive investor looking for above average interest, or an active Real Estate investor, Indiana's tax sale process provides opportunities for both. Having a uniform process across all counties is invaluable when you must attend multiple auctions in a given State. You will find the people involved in tax sales, the county officials, the auctioneer personnel, and even auction attendees very helpful and genuinely great people. Maybe I am biased because I am from the area originally but go see for yourself! Where ever you invest, if your goal is property acquisition, make sure your goals align with that particular community. Your tax lien certificate is evidence of you investing in their community, quite literally. It is just the first step in a relationship. After the auction or throughout the redemption period, visit the county officials in person and learn from them what is happening in the community. When you receive a tax deed from a county, the relationships you built there will matter even more. In an increasingly digital Real Estate world, there is still a fundamental value in being physically present. This is certainly true in Indiana. When your goals align with a particular community, and you have, at some degree, a local operation, the entire process will be easier. And your returns will be of more than just the monetary kind.

Rural Indiana