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Essential Information About Tax Sales.

JohnMenszer2-Exposure-1000931Lately, I am getting a lot of calls about tax sales. It is no coincidence that CivicSource recently conducted a property tax auction in Orleans Parish. Tax sales involve a lot of moving parts and unfortunately they don’t all work together. Let’s look further into this.

After the tax sale while you are waiting for the three year redemption period to run you are going to have to protect your investment by paying each subsequent year’s taxes.

However, if the property has housing violations you as the tax sale purchaser may receive notices from New Orleans Code Enforcement about a hearing.  If you do not remediate these issues the property may be burdened with fines and penalties.  Even worse, the City will not accept your payment of subsequent year’s taxes without payment of the Code Enforcement lien. This is horribly unfair – to expect a non-owner to fix up a property – but it is how the City operates.

There are two roads to reward with a tax sale.  If the owners redeem the property within the three year redemption period you make a nice return.  Your investment back, plus 5% penalty and 1% per month interest.  Twelve (12%) interest is not bad in this economy.

If they do not redeem, what next? The law provides that you can quiet the title to your tax sale purchase. This is the lure for many people – to get property inexpensively. But there are problems here too. The due process clauses in our Federal and State Constitutions work against the tax sale purchaser. As currently interpreted by our courts due process requires that reasonable attempts be made to notify every stake holder in the property prior to the tax sale.  Often, this doesn’t happen.  Most title companies just assume that tax titles are flawed and will not write title insurance on it.

I find that the people who invest in multiple tax sale certificates do best at these auctions. They win on some and lose on others. The purchasers of sole tax sale certificates sometimes lose their entire investments.

What’s Wrong With Reverse Mortgages?

It sounds like a great idea! Tap the equity in your home when you are older and on a fixed income. Pay down your bills. Use the money to travel. What could go wrong?JohnMenszer-1050158

A lot.

1) “You can stay in your home as long as you live.” If you live with another person who is not listed on the reverse mortgage, when you die they will not be allowed to remain in the home. This is true even if they are on the deed. Why would they not be listed on the reverse mortgage? The amount of equity you can take out of your home depends on the age and credit worthiness of the borrowers. It may have made financial sense to leave the younger, less creditworthy person off of the reverse mortgage.

2) “Your up front costs are minimal.” Actually, the fees, commissions and costs of a reverse mortgage are high. But because they are deducted from the loan proceeds at closing and financed by the mortgage, you may not be aware of them. And note, the interest rates on most reverse mortgages are variable.

3) “Everything is taken care of.” Some reverse mortgages provide for the payment of taxes and insurance. If not, this will be your responsibility. If you don’t pay them, you will be in default of your contract. Also, you home has to be maintained properly. You will be responsible for repairs and upkeep. You can be placed in default if you fail to maintain your property.

4) “After you die your heirs can make arrangements to keep the property.” Your heirs will have six months to payout the loan or turnover the property. This is not much time. Let’s say the value of your home increased and exceeds the payoff of the reverse mortgage. This is wealth that should benefit your heirs. But to profit by it they will have to either find financing to payoff the reverse mortgage or sell the property to someone else. Do you want to leave your heirs with this problem? (Note: The six months can be extended by up to two 90-day extensions.)

Consider this real life example.  Mr. X (the names have been concealed to protect the innocent and the guilty) took out a reverse mortgage on his home on October 18, 2010.  He could use the $5,000.00 in ready money and established a line of credit he could draw upon to do improvements to his home.  At the closing the Bank got a fee of $3,510.00, HUD got $3,430.00 for mortgage insurance, there were other costs for a total loan amount of $17,859.26.

Mr. X died 8 days later.  His sole heir was a minor.  His heir should have paid off the loan at that point which would have cost $17,859.26, plus interest.  But, where to get the money?  There was only the $5,000.00 left from the loan closing.  Nothing was done.  Of course, the line of credit could not be drawn upon.

Fast forward to 2015.  The property was vandalized and stood vacant.  The lender finally was foreclosing.  The amount owed, due to interest and costs, was now $57,311.00.  The home is not worth much more than that now.  What a waste!

 

 

Boundary Issues in Real Estate – Use It or Lose It

Ownership of real estate in Louisiana may be acquired by 30 years possession.  A 2005 case illustrates how a good deed came back to hurt a former owner.   House and Fence

In the case both parties owned property adjacent to each other in the City of New Orleans on Metairie Road.  In 1951, Lee the defendant, built a building near his property line with the plaintiff, from which he operated a dry cleaning business.  His customers and employees used a triangular shaped piece of land as a parking area.  All parties agreed the triangular parking area was not on Lee’s land, but on land that originally belonged to the plaintiff.

At trial various customers testified to having parked on the lot.  The plaintiffs agreed that they knew the parking area was being used by the Lees, but did not complain because they were trying to be neighborly.  There is a saying about good deeds coming back to hurt you.

The Court ruled that the Lee’s possession of the parking area was continuous, uninterrupted, public, unequivocal and within visible bounds.  Since it continued for more than 30 years the Court held that Lee acquired ownership of the triangular area by acquisitive prescription.

The Court concluded that although the plaintiffs were aware of the Lees use of the land, they made no formal attempt to stop the use by the Lees until filing suit, some 47 years later.    903 So.2d 661

 

What You Should Know About Code Enforcement.

Code Enforcement is serious business in New Orleans. An Administrative Judgment can cause you to have:
Your property seized and sold at public auction. JohnMenszer-0296
Daily fines of hundreds of dollars per day.
A lien filed against your property.
The fine and penalties added to your tax bill.

In New Orleans, the Municipal Code was amended as of April 10, 2014, making occupied and vacant property subject to the “Minimum Property Maintenance Code”. See this link to the Municode website, specifically Sections 6 and 26:
https://library.municode.com/index.aspx?clientId=10040

It is a violation of the Code to have:
Weeds in excess of 18 inches.
Substantially peeling, flaking or chipped exterior paint.
A gutter that discharges water onto a neighbor’s property.
A window that doesn’t operate or has a substantially cracked glass.
A screen with holes or breaks.
Peeling, chipped or flaking interior paint.
An inoperative or unlicensed motor vehicle.
A hot tub or pool without a 6 foot high fence with self-latching gate.

The Code Enforcement process can be initiated by an inspector or by a neighbor’s call to 311. At the hearing, the owner can present evidence and photographs to show work in progress. The Code Enforcement Bureau has discretion to continue the hearing, if substantial progress is shown, or render a Judgment. If found in violation the Bureau will issue a Notice of Judgment and levy a fine which is subject to stiff penalties beginning in 30 days if the fine is not paid. After 30 days the Judgment is recorded in the Land Records Division of the Clerk of Court (formally Notarial Archives and the Mortgage Office.) The Bureau has discretion whether to have the Sheriff of Orleans seize and sell the property at public auction.

The Owner is best served by bringing the property into full compliance. The administrative process allows appeals of a Judgment to Civil District Court, but only a suspensive appeal, which requires the posting of a bond, will protect the property from seizure and sale. Paying the fine (and penalty) will terminate the current case, but the property is subject to being re-cited for violations. Repeat offenders may have increased penalties.

As I said before, “Code Enforcement is serious business in New Orleans.”

How Good is Your Tax Sale Title?

When it comes to Tax Sales the investor should be guided by the ancient motto “Caveat Emptor,” which in Latin translates to “Buyer Beware.”

There are two main reasons for this:

JohnMenszer2-Crop_-80661) When a property goes to tax sale no one has checked for prior clouds on the title; and 2) The tax sales are often conducted in such a manner that legal notice is not received by the former owners.

When I take a tax sale case the first thing I recommend is a title search. This should reveal the title issues that could be problems later. Next, I make a governmental request for documents that show the steps taken to notify the former owners of the sale. These notices state that the owners are about to lose their property if they do not pay the taxes before the auction. On lucky occasions the record shows that the owners actually got notice, but often it cannot confirm that the notices reached them.

Now a word about titles. The gold standard is a “merchantable title,” which means, not a perfect title, but a title unlikely to lead to litigation. A merchantable title is readily transferrable and a reputable insurance company will write a policy of title insurance on it. The latter is important because most mortgage companies require that a title insurance policy be issued to safeguard their loans. They will not make a loan without the title insurance. It has been the case in South Louisiana that reputable title insurance companies will not issue policies on tax sale properties.

I look at a the purchase of a tax sale as an investment. The tax sale purchaser will have to determine if the risks justify the rewards. Whether, the defects in the title, if any, and the lapses in the notice process, if any, justify the financial risk.

Real Estate Liens and Judgments — How to Cancel Them?

Liens and Judgments that are recorded in the Land Records Division of the Clerk of Court of Orleans Parish are indexed under the names of the parties. They act as clouds on the titles of real estate owned by the parties cast in judgment. Fortunately, there are several ways to cancel them.

Note: Formally, the Land Records Division of Orleans Parish was divided between the Notarial Archives, the Mortgage and the Conveyance offices. Now, all documents in Orleans Parish are filed once, in one place, making Orleans conform to the practices of other Louisianan parishes.

Here are the major ways to cancel a Judgment:

1. Consent of the parties – usually upon payment or settlement of the Judgment balance.

2. Prescription – the effect of recordation ceases 10 years from the date of the Judgment,
unless it is re-inscribed..

3. Order of a Bankruptcy Court – upon motion and hearing the Bankruptcy Court may order the cancellation for a debtor’s lack of equity in the property.

4. Erasure by State Court – usually by a Mandamus proceeding for the failure of the
Clerk to take action.

Here are the major ways to cancel a Mechanics’ Lien:

1. Release by the Lien Filer.

2. Order of the Court in Suit to Compel Release.

3. Prescription if more than a year has passed and no lis pendes (notice of suit) has been filed in Land Records.

Here are the major ways to cancel City Code Enforcement Liens:

1. Consent of the parties – upon payment of the fine, penalty and costs or settlement..

2. Order of the Court – after filing a timely appeal in a lawsuit.

Here is the way to cancel a Federal IRS Lien:

1. Consent of the IRS after notification of prescription or payment.

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Does a Succession Containing Real Estate Have to be Judicially Opened?

If the estate is valued at $75,000.00, or less, you don’t have to open a judicial succession. Even if it contains immovable property. Seventy-five thousand dollars doesn’t buy much of a house, but consider this. If the person was married and in community, the value of the decedent’s interest in the jointly owned property is half the market value. Surely, there are many properties in New Orleans, Metairie and Covington worth $150,000.00, or less.

JohnMenszer2-Crop_-2510Instead of opening a succession judicially the heirs merely execute an affidavit. The affidavit must contain the date of death, the marital status of the decedent, the names and addresses of the heirs, a description of the property of the estate with its value at the date of death and a statement that the person died without a will.

To transfer the real estate the affidavit is filed in the public conveyance records. There is no filing of a succession lawsuit, no filing fees to pay, no drafting of all the required documents and no judgment of possession to be signed by a judge. There is just a simple affidavit of nine points that can be executed in the lawyers office.

The main requirements are these. The deceased must have died without a will. The aggregate estate of all the property must be $75,000.00, or less. At least two heirs must sign the affidavit and if there is a surviving spouse one of the two heirs must include the spouse. Nothing could be simpler.