Surge in tax lien investing leads to new legislation

Managing Editor

Fergus County Treasurer Gwen Gehlen holds up a notice of a pending tax lien assignment at her office Tuesday. Tax lien sales are of interest to some investors.

Photo by Deb Hill

What happens if a Fergus County property owner falls behind on taxes? These days, taxpayers may be surprised to find investment firms “buying” their unpaid taxes.

The reason, according to Fergus County Treasurer Gwen Gehlen, is found in Montana’s state laws, which require that a property owner pay back anyone who paid their taxes, including 10 percent interest.

“With interest rates being so low for most kinds of investments, buying tax liens is becoming a business,” Gehlen said. “The law says anyone can buy a tax lien, and the taxpayer has a set amount of time to pay them back, plus interest. There aren’t very many other investments that pay this type of interest right now.”


How tax lien investing works

The second half of property taxes is due at the end of May each year.

At the end of June every year, Gehlen is required by law to advertise a tax lien sale. Property owners who failed to pay their taxes will find their properties included in the list of delinquencies for sale.

“The vast majority of property owners do pay their taxes, although they may do it right at the very end of the time period allowed by law.” Gehlen said. “This year we sent courtesy reminders to property owners, which cut the number of properties with delinquencies in half.”

Those who have not paid their taxes by the third Monday in June will have a tax lien filed against their property in the amount of the taxes owed, plus any penalties or interest that have accrued.

The county treasurer is mandated by law to create a list showing the amount of each lien, along with information about each property, such as the address and owner’s name.

These lists are made available to interested parties through the Treasurer’s office.

“We are required to provide this list of properties, showing the taxes owed, to anyone who requests it,” Gehlen said. “Then on a fixed date we hold a tax lien sale, where we sell the liens to whoever wants to pay them off.”

Montana law allows any individual to pay the unpaid taxes for another person. These days tax lien investment companies buy the majority of the liens.

Gehlen said two companies, Zinvest, LLC out of Billings and Investment Properties Finance Group, LLC out of Great Falls, purchase most of the tax liens in Fergus County.

This past July, Gehlen said, one company purchased over 80 Fergus County liens.

The tax lien investment companies pay the Fergus County Treasurer for the taxes due on each lien they purchase, plus penalties and other costs. The owner of the property then has three years to pay the company back, along with the 10 percent interest.

If the property owner doesn’t pay up, the holder of the tax lien can file for a tax deed, and, once they receive the deed, can do what they want with the property, including sell it.


Current process creating problems

Rhonda Wiggers says the aggressive interest in tax liens has created issues for county treasurers across Montana. Wiggers should know. She is the lobbyist for the Montana County Treasurers Association, which is proposing changes to state laws governing the tax lien sale process.

“It used to be when counties held tax lien sales, sometimes no one showed up,” Wiggers said. “People might come in days later, after the sale, and buy small numbers of liens as investments.”

That, Wiggers says, is no longer the case, and competition between tax lien investing companies is fierce.

“Recently it feels more aggressive because of low interest rates, and because you can find out with the push of a button on a computer who owes liens in which counties,” Wiggers said.

Because of the requirement that tax lien purchasers send certified notices to the property owners whose liens they are buying at least two weeks before the tax lien sale, and because of increasing competition between tax lien investing companies, some Montana property owners have received notices saying their tax lien was purchased before the deadline to pay their taxes had passed.

“People are calling the county treasurers, demanding to know why they are getting letters saying their tax lien was purchased when their taxes are not even due yet,” Wiggers said.

To make the process work better for everyone involved, the Montana Association of Counties is supporting a bill in the 2017 legislature to improve process of tax lien sales, including requiring better communication between lien buyers and property owners.

 “We do need the tax lien sales,” said Harold Blattie, executive director of MACo. “It’s important that taxes be collected on behalf of schools, special districts and counties. The tax lien sales allow county treasurers to collect the taxes that are due. We just need to do it with a process that flows and makes sense.”




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