Introduction to Maryland Tax Lien Investing
No matter what state you’re in, tax lien investing is a complex venture requiring detailed knowledge and careful planning. Maryland takes this dynamic to the next level.
The stringent investment timeline, legal nuances, and varied practices within each county aren’t for the faint of heart.
However, investors who are prepared to put in the necessary work can reap the benefits, including an 18% interest rate and a solid shot at acquiring real estate at every auction.
So, how does a Maryland-based investor get their business off the ground?
Tax Sale Resources has been collecting data on tax lien states for nearly fifteen years, and our tax sale auction data for Maryland provide the information and tools necessary for you to outbid the competition at the next auction and adhere to a profitable investment model.
Here are the details on Maryland’s tax lien process, the legal pitfalls to avoid, and the future of tax lien investing in the state.
How does the process work?
While auction procedures in Maryland vary by county, they follow the same track at a general level.
No matter where you’re investing, you must attend the auction online or in person, as the state has both. Then, you’ll bid on the liens for sale, typically with a premium to make your offer competitive.
How you bid depends on the format. Online sales aren’t the traditional paddle-raising affair where you can counter other bids as the sale occurs. Instead, you send bids on all the desired properties in a single spreadsheet. If your bid is the highest for any of the properties you’re chasing, you win.
As a result, bidding high is crucial at online auctions in Maryland because you won’t have the chance to raise it later on.
After you win a bid, the lien you receive has a six-month redemption period. During this time, the property owner can pay the delinquent taxes, fees, and interest to redeem the property.
However, if the property doesn’t redeem, this six-month period is your opportunity to prepare to go through the judgment process to acquire the deed to the property.
The time crunch can be challenging, but the upside is you’ll have the insurable title (as opposed to a quiet title) when you become the new property owner.
What return can an investor expect?
The maximum interest rate for tax liens in Maryland is 18%.
However, rates vary across counties, so investors could reap between 6% and 18% depending on the location. In addition, how the interest is calculated varies by county.
For example, tax liens from some counties might accrue monthly, while others accrue interest daily. These calculations impact your returns and overall investment model, so it’s crucial to understand each county’s tax sale policies.
Additionally, premium bids can affect your returns in Maryland.
Bidding over the market value increases your returns, but the returns diminish after a price threshold. Specifically, state law allows investors to collect interest on bids up to 40% over the property’s market value. If your bid surpasses this amount, 20% of that portion won’t accrue interest.
Therefore, a hefty bid could lock away more capital in an interest-free account, reducing your overall return. However, not every county practices this high bid premium rule, so understanding each county’s specifics is essential to savvy investing.
What are the redemption rules?
While states like Arizona are conducive to a buy-it-and-forget-it approach, Maryland tax liens require vigilance and swift action.
The redemption rules for tax liens in Maryland impose a rigid timeline for investors to transfer ownership of unredeemed property.
Remember, the redemption period is six months, during which time the homeowner can pay the taxes, fees, and interest. Doing so means the homeowner keeps the property.
Because counties must give delinquent homeowners at least 30 days before auctioning off the lien, homeowners are well aware that back taxes are due and investors are potentially pursuing a deed to their home.
However, if the homeowner doesn’t redeem the property, the investor can file to foreclose.
To do so, the investor must send two notices to the past property owners, mortgage holders, and interested parties. Failing to do so will invalidate your petition with the court to foreclose.
Additionally, because the notification and foreclosure steps can take 4 to 22 months to complete, it’s vital to jump on it during the six-month redemption period. Otherwise, you could jeopardize your ability to become the new property owner.
In other words, taking action during the redemption period is essential, and waiting until the redemption period expires to implement a foreclosure can wreak havoc on your investment.
Following the correct steps means your local circuit court will issue a final judgment on the property ownership.
Remember, any interested property can redeem the property until the court declares you the new owner. If no one redeems the property, you can then acquire the deed to the property by paying the non-interest-bearing overage you bid on the property.
This surplus amount isn’t required if you don’t pursue ownership.
When are the tax lien sales in Maryland held?
The timing of tax lien sales in Maryland depends on the county.
Most counties hold tax sales in May or June, with one exception. St. Mary’s County conducts tax sales in the first week of March.
As a result, it’s crucial to research the county you’re investing in to ensure you don’t miss the auction.
Fortunately, January through April never contain tax sales in Maryland, giving you ample time to prepare.
This type of scheduling differs from a state like Texas, which mandates that county tax sales occur on the first Tuesday each month.
Maryland Tax Lien Sale Insights to Help a New Investor
Tax Sale Resources has gathered tax sale data on Maryland for 13 years.
Our database of Maryland’s tax sale history, current liens for sale, upcoming auctions, and more is available for investors who are ready to build an investment portfolio.
If you’re getting started in Maryland, a building block of your investment model is the redemption period.
Having just six months is challenging for homeowners who are strapped and owe thousands of dollars in taxes and fees. With this quick turnaround time, homeowners can struggle to redeem the property.
While some properties will redeem, investors should plan to become property owners if they invest in Maryland tax liens.
As a result, investing in Maryland tax sales means getting involved in the local real estate market.
This reality means it’s critical to understand the locations of the properties for sale and the housing market trends in the county. Fortunately, Tax Sale Resources’ market analysis has data on how property values relate to surrounding areas and which sales have the least competition.
Another aspect for investors to consider is how interest earnings compare to property ownership.
This calculation means understanding the details of the properties you’re pursuing, estimating the likelihood of redemption, and risking higher bids for liens that fit your investment model.
For example, while bidding far above the property’s market value can mean winning the lien and receiving more interest, you must pay this overage amount later on if you want to become the new property owner.
Weighing these risks and costs against your investment objectives is a matter of conducting due diligence.
While Tax Sale Resources doesn’t provide a customized analysis of every investment model, we provide the data to help you run these calculations and never miss an opportunity.
Pros of Investing in Maryland Tax Lien Sales
Investing in Maryland tax lien sales means your portfolio will benefit in the following ways:
- Potential High Returns: Maryland offers a maximum interest rate of 18%, allowing investors to earn significant returns when properties redeem. This rate extends to overages up to 40% over the property's market value for counties with high bid premium statutes, meaning surplus bids can provide additional earnings.
- Online and In-Person Auction Options: Investors can participate in tax lien auctions online or in person, providing an array of advantages. On one hand, online auctions are accessible and convenient. Conversely, in-person auctions have less competition because physical attendance is required.
- Insurable Title: If the property doesn't redeem during the six-month redemption period, investors can go through the judgment process to acquire the deed, ensuring an insurable title when becoming the new property owner. An insurable title allows you to sell or finance the home.
- Tight Redemption Schedule: The six-month redemption period cuts both ways, as you'll see below. The upside is that homeowners might not redeem within this stringent timeline, providing opportunities to own more real estate.
Cons of Investing in Maryland Tax Lien Sales
Maryland tax liens also have the following drawbacks to account for before investing:
- Time Sensitivity: The six-month redemption period can be challenging, requiring investors to act promptly to initiate foreclosure and acquire the deed. This time constraint may pose challenges for due diligence and decision-making.
- Risk of High Bid Premiums: Bidding over the property's market value can increase returns, but exceeding the 40% premium threshold results in a portion of the bid not accruing interest. Doing so ties up more capital without bearing more interest.
- Varied Statutes: Maryland's counties exercise plenty of autonomy over their tax sales, resulting in diverse practices across the state. Investors must develop expertise in each municipality to build successful portfolios. Plus, Baltimore City behaves like its own county regarding tax sales, so understanding Baltimore County's tax statutes isn't enough to invest in the city's own tax sales.
Tools to Accelerate Your Maryland Tax Lien Investing
Kick-starting your tax lien investments in Maryland means having enough capital to get your portfolio off the ground.
Tax Sale Resources has tailored a financing program specifically for Maryland tax sales so investors can grow their portfolios with extra spending power.
Here's how it works: typically, when bidding on tax liens, a bidder must bring only a percentage of the bid amount to the auction, with the remaining amount due when taking judgment on the lien.
Calculating the capital needed at the auction is complex, but usually, investors need about 20% of their total bid amount.
The remaining 80% is due only when filing a foreclosure petition in court.
Historically, the challenge for investors in Maryland has been figuring out how much they can buy, identifying which properties will likely redeem, and determining the correct ratio of capital to maximize returns.
Our capital partnership program within our Accelerator Program addresses this challenge by providing capital at the end of the process, helping investors with the resources needed for court judgments.
The goal is to allow investors to use their available capital efficiently, maximizing returns on the properties that do not redeem. This way, you can invest in liens, collect interest payments, and draw capital from Tax Sale Resources if and when you're going to court for property ownership and need your full bid amount.
Tax Sale Resources also offers financing for property investors who have already put through the foreclosure process and now own.
So, no matter where you are in your investments in Maryland, our financing program has your back.
Additionally, our Research tool show allows you to quickly underwrite all Maryland tax sale lists with ease.
We provide data on over 1.4 million liens and 8,100 auctions every year, allowing you to cross-reference listings and compare current offerings against historical trends.
You can filter property lists according to your investment model, view the details of each property, and even order a drive-by inspection from our team of professionals.
Our detailed analysis will help you make wise investments at every auction.
Current Trends of Tax Sale Investing in Maryland
Tax Sale Resources’ market analysis report that is offered to Accelerator Program members gives updated insights on tax sale investing nationwide.
Viewing Maryland’s most recent data shows various trends investors can follow to maximize returns.
For example, Charles County auctioned off nearly as many vacant lots as residential properties in 2022, representing an opportunity for investors interested in land development.
Additionally, about 64% of liens sold in Baltimore County went for over $20,000 of the average county value, indicating higher investment costs and potentially higher interest earnings.
Maryland Tax Lien Sales Future Insights
Legal Considerations While Investing in Maryland Tax Liens
Unlike in many other states where investors can handle tax sale processes themselves, Maryland's investing environment is complex and fast-paced.
As a result, having a licensed attorney is mandatory at various stages of the tax lien investment process.
For example, filing a petition with a circuit court for foreclosure and notifying past owners of your move to acquire the deed to a house are actions requiring legal expertise.
In other words, working with an attorney is inevitable if you invest in tax liens in Maryland.
Our Recommendations for a Qualified Maryland Tax Sale Attorney
We recently interviewed attorneys Charles Gormley and Jim Truitt, both Maryland-based attorneys who can provide more pointers on the legal front and recommendations on who can help you navigate the legal intricacies in the state.
The key is to find a lawyer who understands tax sales across Maryland’s diverse counties.
Potential Tyler v Hennepin Ramifications to the Maryland Tax Sale Process
While Tyler v Hennepin has caused nationwide apprehension over tax sale investing, statutory reviews in numerous states, and lawsuits over county practices, the subject of the court ruling is surpluses from tax sales that counties are now obligated to hand over to homeowners.
Maryland’s tax sale procedures don’t create surpluses, and counties don’t profit from premium bidding.
As a result, there’s currently no impact from the Supreme Court’s ruling on investor activity in Maryland.
Forward Looking Insights Based on the Tax Sale Resources Data
Looking ahead to the next year, Tax Sale Resources expects the market to remain steady.
After 2020 and 2021 experienced COVID-related turbulence, the tax sale market supply has leveled out across the country.
Maryland fits this trend, having seen a modest uptick in volume over the last year. So, investors can jump into 2024 expecting to trade at a volume similar to 2023.
Maryland Tax Liens - Frequently Asked Questions
How to buy tax liens in Maryland?
To buy tax liens in Maryland, investors can follow these steps:
- Attend Auctions: Attend tax lien auctions, which can be either online or in person, depending on the county. Maryland has both options available.
- Bid on Liens: During the auction, bid on the tax liens for sale. Bidding often involves offering a premium to make your bid competitive. For online auctions, you won't engage in a conventional process with paddles and an auctioneer rattling off properties. Instead, you submit bids for desired properties in a single spreadsheet. The highest bid for each property wins.
- Redemption Period: During the six-month redemption period, the property owner can pay the delinquent taxes, fees, and interest to redeem the property. If the property doesn't redeem, use the six-month period to prepare for the judgment process to acquire the deed to the property.
- Finalize Ownership: After successfully going through the judgment process, you can acquire the deed to the property and become the new owner.
How to search for state tax liens in Maryland?
While you can independently search for tax liens by contacting counties or searching their websites for listings, you won't get a robust, updated list this way. On the flip side, you can search for Maryland tax liens that fit your investment model using the research tools from Tax Sale Resources.
This way, you'll understand property values, view market trends, and identify areas with the least competition.
How to profit off tax liens in Maryland?
Generating profits off tax liens in Maryland requires a sophisticated, informed investment approach.
Remember, Maryland offers a maximum interest rate of 18%.
Research and invest in counties with interest rates aligned with your profit goals, remembering that strategic bidding often involves premium bids.
While bidding over the property's market value increases returns, be mindful of bidding over 40% of the fair market value, as you'll experience diminished returns.
Additionally, the interest rate is irrelevant if you target your investments toward liens you don't think will redeem.
In these cases, you're investing with the plan to become the new property owner. This model involves increased investment costs from the legal procedures necessary to obtain an insurable title and more time to finalize the court ruling transferring ownership.
Conclusion
Delving into Maryland's tax lien investments demands a nuanced approach.
Investors must navigate varying county auction procedures, whether online or in person, employing strategic bidding with premiums for competitive offers. The ensuing six-month redemption period necessitates proactive measures, preparing for potential property ownership through the court judgment process.
Prospective investors must weigh the advantages, including potential high returns, online and in-person auction options, and the prospect of obtaining an insurable title.
However, the cons, such as time sensitivity, risks associated with high bid premiums, and the varied statutes across Maryland's counties, add complexity to the picture.
Fortunately, tools like Tax Sale Resources' financing program and research tools empower investors, offering capital flexibility and insights into market trends.
