Amazing Back Tax Property Opportunities with Forbearance (LA 1354)

Amazing Back Tax Property Opportunities with Forbearance (LA 1354)

Transcript:

Steve Butala:
Steve and Jill here.

Jill DeWit:
Hello.

Steve Butala:
Welcome to the Land Academy Show, entertaining land, investment talk. I’m Steven Jack Butala.

Jill DeWit:
And I’m Jill DeWit, broadcasting from sunny Park City, Utah.

Steve Butala:
Yeah. Jill and I are at Park City all week doing, guess what?

Jill DeWit:
Work.

Steve Butala:
Looking at real estate.

Jill DeWit:
And fun. And fun. So far, we’ve had some fun. I think it’s a good …

Steve Butala:
When do we not have fun?

Jill DeWit:
I know. And we’re going to have even more fun.

Steve Butala:
I wonder if there’s an IRS rule on that.

Jill DeWit:
Can’t have too much fun?

Steve Butala:
Yeah. If you’re going to go take a business trip, we expect you to not have any fun at all.

Jill DeWit:
Right.

Steve Butala:
Like I really wonder what the rules are like. You have to work eight hours a day.

Jill DeWit:
Well we kind of do that anyway.

Steve Butala:
It’s got to be ordinary and necessary. I mean, I think this falls into all of that.

Jill DeWit:
Hey, if I’m closing a deal at breakfast, I think that counts.

Steve Butala:
You just closed a deal.

Jill DeWit:
I know.

Steve Butala:
I just watched you.

Jill DeWit:
That’s what I’m saying.

Steve Butala:
And now we’re doing this?

Jill DeWit:
Mm-hmm (affirmative).

Steve Butala:
So it’s ordinary and necessary to be here, to look at this property that we’re going to buy.

Jill DeWit:
There we go.

Steve Butala:
Today’s topic.

Jill DeWit:
before we get into it.

Steve Butala:
Oh. Before we get into it let’s take a question posted by one of our members on the landinvestors.com online community. It’s free.

Jill DeWit:
John wrote, hi guys, I’m working on a mailer and we’re very interested in some states that are nondisclosure. Typically, when I do my county research I pop on to Zillow and review the areas for sale listings, and recently sold listings, to see if it’s a hot market with lots of land moving. But for some non-disclosure states, the sold data seems pretty unreliable. How are you guys getting around this and identifying whether an area in a non-disclosure state, it has enough demand?
I like that. I have two points.

Steve Butala:
Of course.

Jill DeWit:
Okay. Number one, be nosy in these listings. If you look, you’ll see, like, if you really want to get into some of these listings, say you find them and it doesn’t have an accurate sale price.

Steve Butala:
So there’s a core issue in land investors about what non-disclosure is. And it turns out that there’s two types of nondisclosure.

Jill DeWit:
Correct.

Steve Butala:
What Jill’s talking about-

Jill DeWit:
Prices, sales prices.

Steve Butala:
Yeah. So there’s some states that don’t encourage, or require, this transaction sale amount to be disclosed to the public. Texas is a great example.

Jill DeWit:
But you can find them in there, it’s not everywhere. I’ve found them in Texas.

Steve Butala:
It’s voluntary. So some people do it, some people don’t. So it’s harder to get comps in those States. The second type of non-disclosure is do not mail.

Jill DeWit:
Right.

Steve Butala:
I think there’s probably 4% of the states that they have do not mail laws. And they’re like we can’t send offers in.

Jill DeWit:
Right. You can still get the information they just don’t want you to hit them.

Steve Butala:
So there’s some confusion about what those were, and the way John asked this question, it’s like … I don’t know which one he’s talking about exactly.

Jill DeWit:
I know he’s talking about A.

Steve Butala:
So go ahead.

Jill DeWit:
Because he’s going to Zillow obviously.

Steve Butala:
Right.

Jill DeWit:
And he’s looking for sold comps.

Steve Butala:
So go ahead.

Jill DeWit:
Totally get it. Dig in there. This is what’s so funny about Steven and I. So he digs deep on the front end of data, when you’re pricing your mailers, and then I dig deep when I’m doing my due diligence and things like this. So you could benefit from both of us. He’s doing the front end work, but you can use a little bit of what I’ve learned. If you dig deep into Zillow and you’re in an area you’re like, “Doggone on it, I can’t find any of these actual sold comps.” But you know what? If you go down to the property details and you expand it, you can see listing price, listing price, last listing price, and it’s sold with a blank. Huh?
It has just a dash because they didn’t put it in there. And then it’s funny if you go look at the Zestimate, the Zestimate is pretty darn close, if not identical, to the last listing price. You got an idea of what it sold for. That’s actually really good information. Well, the other thing I wanted to say is too, it’s not even so much … I love sold prices when they’re recent and accurate. Correct? However, I don’t want a three year old sold price. I don’t really care. So if some of the areas you’re looking at, you only have comps from three years old, you might as well have nothing. I’m really more interested, and I know you are too, what’s for sale right now? What are people asking right now? What are the days on market right now? What’s really happening not even a year ago?

Steve Butala:
Especially now with the COVID.

Jill DeWit:
Right.

Steve Butala:
Because a year ago, well, this is October. October, November of 2020. A year ago everything was fine. Everybody was toasting each other in a bar having a drink. And now that’s a prison sentence in California. And the real estate market’s completely different. So Jill’s, right. The most recent comps you can get, the better.
You’re also right about the fact that I address all this stuff up front. I go through a lot of this before the mail ever goes out from a pricing standpoint. When an offer comes back, she’s verifying that. And it’s not always true that I did the right thing on the pricing. She’s verifying that my price is correct. Yeah, we’re buying it for 20% of what we think it’s actually worth, or some version of that, and we can double our money. And so she’s gathering information manually on 10 or 15 properties that come back on a mailer. And it’s nice to know that the information you need is available.

Jill DeWit:
Right, because you’re doing 15,000 up front to get the mailer out. I’m only reviewing the signed offers they come back. Now I’m looking at it going, okay, how accurate were we?

Steve Butala:
Really scrutinizing it.

Jill DeWit:
Is there some weird thing about this property? Is it right? You know, that kind of a thing. Good question.

Steve Butala:
Today’s topic, Amazing Back Tax Opportunities with this forbearance situation. This is the meat of the show.
We are using all new equipment in a different state. And I wonder how it’s going to come out.

Jill DeWit:
We have used this equipment from San Francisco right? A while back.

Steve Butala:
Yeah.

Jill DeWit:
So that’s when we acquired the new equipment. And we’re using old equipment. That’s why if you’re watching this you see our headphones. It’s just so much easier than traveling with our big studio of mics and stands, and lights. So we’re going to make it work right now.

Steve Butala:
So how do back taxes work? Without telling you how a clock works when you ask me what time it is, back taxes come with every single-

Jill DeWit:
How to build a watch.

Steve Butala:
Yeah, how to build a watch. Back taxes come with every single property with very few exceptions in this country. This country was built on property taxes, I should say. So when you own a piece of property you pay taxes on it semi-annually or annually, obviously every year. Up until World War II, that’s all that the country was built on, on property taxes. So it’s only because they needed to fund the war.
It was all war driven that income taxes came into play. So there’s a lot of back taxes that get collected. And if you own your property outright, like the way that we do with land, 99.999% of the time all the land that Jill and I buy is without a lender, you get a notice in the mail sometimes once or twice a year. And it says, hey, you owe these taxes. And so you pay your taxes most of the time.

Jill DeWit:
Do ya? Just kidding.

Steve Butala:
If you have a mortgage.

Jill DeWit:
That’s what we’re talking about. It’s going to lead into this.

Steve Butala:
If you have a mortgage, or any type of lender, the mortgage company, anybody who has a mortgage knows this, the mortgage company does it for you.

Jill DeWit:
They make sure it’s paid. They collect it for you upfront.

Steve Butala:
Because the taxing authority can place a lien on that property. And the person that holds the mortgage, let’s say it’s Bank of America just for sake of argument, they would take a second position lien to that back tax. First position lien in every situation. They go in front of everything with the possible exception of IRS liens. So the mortgage companies have a huge interest in making sure it gets paid. So they include that in your mortgage payment amount. They put it into an account and they pay those taxes every single year, or so they say they do. So if you stop paying your mortgage because of forbearance, or for whatever reason you stopped paying it, those taxes are going to stop getting paid.

Jill DeWit:
Right. The bank’s not going to pay them on your behalf.

Steve Butala:
Right.

Jill DeWit:
They should.

Steve Butala:
Exactly. I learned a new word this year, forbearance. So in a forbearance situation where for six.

Jill DeWit:
You know what I just thought of? Go ahead, I’m sorry.

Steve Butala:
Go ahead, go ahead.

Jill DeWit:
Remember, was it the electric company For Bearance? For Bearance.

Steve Butala:
Oh Jill. I mean, is this that boring that you need to just lighten it up a little bit?

Jill DeWit:
I do need to lighten the mood a little bit. I think this is actually not a bad … We should make this a whole show, I’m not kidding. A whole show should be all about all the new terms, all the new weirdness, all the things we never dealt before in our lives until COVID. Seriously, this is not crazy.

Steve Butala:
Write it all up, I’m happy to do it with you.

Jill DeWit:
Okay, right.

Steve Butala:
So there’s a material number, 33% of all the property, the residential property in this country, whether it’s rented or has a mortgage on it, is in some type of forbearance or in foreclosure. That means 33% of the taxes on these properties aren’t getting paid.

Jill DeWit:
Right.

Steve Butala:
I didn’t check to see what, in good times, what those numbers are. My guess is it’s way less than 10%.

Jill DeWit:
That’s what I would think.

Steve Butala:
So it depends on the state. The states have statutes that regulate how they deal with back tax property at a certain amount of time. They take the property back after noticing and noticing and noticing. They’ll take the property back and then auction it off. I don’t want to get into that, it’s pretty complicated. I’ve made a second career out of buying and selling tax property, both liens and deeds. But the point of this whole show is that I believe in about three to five years, the amount of back tax property that’s going to hit the market nationwide is staggering. Especially in the migration states in the Midwest.

Jill DeWit:
I have a question for you.

Steve Butala:
All that spells for us is massive opportunity.

Jill DeWit:
In the past, banks were not set up for this. They didn’t have a plan. They weren’t good at real estate. It seems like there was probably, I envision stacks of these on people’s desks. And you hit the right guy at the right day and he’d be like, send you a spreadsheet. And it’d almost be like, tell me what you want to buy off of us, as a bank. I want to say too, we still don’t scrub banks, as far as I know, right? We don’t scrub banks out of our mailers because there might be some gold there. I don’t seek them out, slash however, I don’t take them out of our mail. If a bank comes in and he’s kind of interested, let’s talk.

Steve Butala:
Yeah. What she’s asking about is that banks have procedures about foreclosing on loans that are defaulted. So a few days from now I’m going to talk about the relationship between real estate and paper. I’m going to talk about that in great detail. I think it’s two or three days from now. But they have a procedure and they get put into tranches. So they get foreclosed on and they get like graded, A grade, B grade, C grade. And it’s just like anything else, there’s a lot of companies. There’s companies that these asset managers have relationships with and they’ll send stacks out.

Jill DeWit:
Okay, so here’s my question to you. Do you think how it’s going to play out in the future with these banks, and are they even set up for it?

Steve Butala:
No.

Jill DeWit:
Okay. Which, this for me is opportunity, that’s why.

Steve Butala:
I kind of have that question too because technology … Last time this happened was 2010. We all know what happened to technology between 2010 and 2020. It got better and easier and faster. So I would assume, I have to assume because I don’t know, if the asset departments, they’re called the toxic assets. The asset departments in these banks, if they are 10 years ahead of where they were 10 years ago, I don’t know. Now more than ever, we’re walking, breathing, examples of this, we have all this data about real estate available to us and we’re making decisions based on this data. So hopefully asset managers in the departments are doing the same thing, and they’re not going to let these assets go for a tremendous markdown just to get it done. So we’re kind of talking about two different things. I’m more interested in back taxes.
I’m not interested in defaulted property. It’s called REO property, real estate owned. I’m talking about just the sheer amount of, at the end of the line, when all that’s been written down, and the tragedies happen, and everybody’s wiped their tears, and the county owns 10 times more property than it’s used to owning.

Jill DeWit:
Right.

Steve Butala:
That’s it. I’ll tell you, I’ve been to probably 500 back tax auctions in my life and many of them it was standing room only. And many of them it was just me and I bought every single property because nobody showed up. That’s what I think is going to happen here.

Jill DeWit:
Yeah. I don’t know if we said it like this. We talked about banks and things like that before going into this, but what really happens in land, there’s not a lender involved. So Steven was talking about how the bank collects the money, taxes get paid, banks not collecting the money, taxes aren’t getting paid. What if there’s no bank? You just stop paying. People stop paying, a lot of them. And there’s no lender so there is no first position. Second position doesn’t even matter.

Steve Butala:
Exactly Jill.

Jill DeWit:
The only position is the county.

Steve Butala:
That’s right.

Jill DeWit:
And that’s where you’re just buying property from and it’s the greatest thing. And I want to add one little tidbit, a nugget for people. Because a lot of people are worried about these and nervous about these deals because they’re like, “Oh, I’ve heard you can’t get title insurance.” Guess what? There are ways. And there are companies that you can get title insurance on these properties. And if you want me to expand, I will, if not, I will leave it at that.

Steve Butala:
Well, a little bit of background for whatever reason, and this is the past.

Jill DeWit:
Right.

Steve Butala:
Back tax property had a stigma with it about not being able to take on title insurance, and that’s gone. And for the reasons I just said. Technology has caught up, there’s companies out there that will happily issue title insurance on back tax property.

Jill DeWit:
Exactly.

Steve Butala:
So the reasons for not having a back tax side business, if you’re in a real estate, are getting smaller and smaller. The opportunity is getting bigger and bigger. And I think we’re going to see unprecedented amounts of property hit the back tax rolls in these counties.

Jill DeWit:
Ding, ding.
Happy you could join us today. Five days a week, Monday through Friday, you can find us right here on the Land Academy Show.

Steve Butala:
Tomorrow, the episode on the Land Academy Show is called Due Diligence. And how Jill always used to talk about the four A’s, they’ve now become the five A’s. You are not alone in your real estate ambition.
It’s hard to talk about taxes, back taxes and property taxes, and make it interesting. So this show was for you geeks out there like me that-

Jill DeWit:
Just needed the darn answers.

Steve Butala:
Yeah. If you’ve ever bought back tax property, whether you sat in some county somewhere in the sticks with the gavel and an auctioneer, or if you’re online on places like bidforassets.com, and enjoyed it and made money on it, well put your helmet on. This is going to be cool.

Jill DeWit:
I’m trying to remember that time I was sitting there, I’m sure I had a cell phone back then, but sitting there with you. I know we had cell phones, I don’t know how advanced they were. But sitting there with a notepad, writing down as fast as I could as you’re buying the properties. You’re like, “Give me a running total. Give me a running total. Where am I? Where am I?” “Okay, you hit this mark.” “Okay, keep going. Let me know when I hit this amount of money.” I’m like, “Okay.” I couldn’t write fast enough.

Steve Butala:
That was one of those auctions where there are probably 10 people there. This is how every auction goes. There’s 10 or 15 or 20 people there, that is either that, or it’s standing room only, in which case I usually leave or it’s just me. In which case I buy every single property. But the first one is the most likely. Where there’s 10 or 15 people, maybe 20 people, half of them, or maybe 80% of them are local people.
They’re there for one property, it might be next door to them where they live, or it’s their aunt Nancy’s property that they didn’t realize the family went way back, taxes aren’t getting paid and they’re there to pick it up, back at the auction. So my rule has always been leave the locals alone. If I see locals bidding on properties, I stop. I don’t get involved in that set. It’s a respect thing. But I’ll tell you the other properties that nobody just really cares about. And there’s usually one or two other people like me there that resell property on the internet, screw those guys. I’ll buy it.

Jill DeWit:
Boy, that’s my guy.

Steve Butala:
And this is a good luck charm right here. Jill, that one auction we went to, we bought thousands and thousands of properties.

Jill DeWit:
Exactly.
In case you haven’t heard it before, I’m going to say it again. Thank you for tuning in we really appreciate your support. And if you haven’t already, get over to our YouTube channel, hit the subscribe button. And also, please leave comments and suggestions, anything you want. We read them and it really does make a difference on us picking topics and things going forward for future shows.

Steve Butala:
We are Steve and Jill.

Jill DeWit:
We are Steve and Jill.

Steve Butala:
Information.

Jill DeWit:
And inspiration.

Steve Butala:
To buy undervalued property.

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