It’s property tax time in Mississippi as I write this in August, 2022. It reminds me of the importance of paying attention to your IRA investments.
Every year on the last Monday of August tax liens which are still delinquent are sold at public auction (MS Code Sec. 27-41-1 (2020)). The tax collector will deliver to the purchaser of lands sold for taxes a receipt showing the amount paid, a description of the land sold, the amount of taxes due, and the date of sale, and the receipt signed by the tax collector is evidence of the purchase of the land by the purchaser (MS Code Sec. 27-41-75)). The owner, or any persons for him with his consent, or any person interested in the land sold for taxes, may redeem the property at any time within two years after the day of sale, by paying the chancery clerk, regardless of the purchaser’s bid at the tax sale, the amount of all taxes for which the land was sold, and interest on all such taxes, including all costs incident to the sale, plus interest at the rate of 1.5% per month. (MS Code Sec. 27-45-3 (2020)). When the period of redemption has expired, the chancery clerk will, on demand, execute deeds of conveyance to individuals purchasing lands at tax sales (MS Code Sec. 27-45-23 (2020)).
For example, the tax sale this year is on August 30, 2022. The period of redemption will expire for 2019 tax liens, which were sold in the August, 2020 tax sale, on August 31, 2022. If you own or have a lien on a property and fail to redeem it by the deadline, you will lose your interest in the property.
Mississippi is a tax lien state. In other words, what is sold at a tax sale is the lien on the property, which can later mature into title to the property if the property taxes are not redeemed. Other states, like Texas, for example, are tax deed states, which means that what you are buying at the tax auction is a deed to the property, subject to the limited right of the owner or other interested party to redeem the property by paying the property tax purchaser the amount he paid at the tax sale plus a 25% penalty in the first year and a 50% penalty in the second year. Be sure to learn the rules for investing at tax sales in the state where you are investing. This is especially important if you are investing through online bidding.
At Quest Trust Company we receive notices that the chancery clerk is required to send to owners and lienholders of the pending expiration date of the period of redemption in Mississippi every year. Those notices are forwarded to our clients. Sadly, in some cases the clients do not react in a timely manner, and their ownership or liens get wiped out by the tax sale.
Let me give you some examples. One client who had a recorded lien against a property received a notice that stated “the title to said land will become absolute in said purchaser unless redemption from said tax sales be made on or before the 31st day of August, 2022.” The client wasn’t sure what to do with the notice, but Quest was unable to give him any tax or legal advice. Fortunately there was a second lien on the property and the second lienholder made sure that the taxes were paid and the property was redeemed. That was a close call.
In another case, the client actually lost the title to a condominium worth over $200,000 for a delinquent tax bill of less than $5,000. His IRA had to hire an attorney who sued to set aside the sale due to defects in the tax sale. Fortunately, after approximately 2 years of litigation the IRA recovered title to the property. The whole mess could have been avoided if the client had just been paying attention to the payment of taxes.
The lesson to be learned from these experiences is this – you need to pay attention to the payment of taxes and other expenses due on property owned by your IRA or on which your IRA owns a lien. This applies to other bills also, such as insurance. Do not ignore notices which you may receive or assume that the problem will be taken care of by other parties. Remember, in a self-directed IRA you are responsible for monitoring your investments. Your custodian is a neutral party holding title to your IRA’s assets. They are not permitted to provide you with tax, legal, investment, or deal structuring advice.
Here are some helpful tips to help keep your IRA investments safe:
- Always keep track of deadlines that pertain to your investments, including tax payment deadlines, loan maturity dates, the lien expiration date for loans, insurance due dates, and any other deadlines you know about.
- If you invest in a state where you do not live, be sure to find out what the local deadlines are that may affect your investments.
- Never assume that any third party, including your borrower, investment partner, or custodian, will take care of the problem if you receive a notice of some sort, such as the pending expiration of the redemption period discussed in this post.
- Make it a habit to learn the relevant deadlines for the jurisdiction where you are investing and enter them into your calendar when you first make the investment.
- Either close a real estate purchase or a loan secured by real estate at a title company or closing attorney’s office so that you know for sure that taxes, homeowner’s association dues, insurance binders, and other relevant bills are current when you first make the investment, or if you don’t do that then have the discipline to do that all yourself.
- Always make it a condition of any loan modification and extension to have the borrower provide evidence that taxes, homeowners’ association dues, insurance, and other bills are paid current before agreeing to the modification and extension of the loan.
- Take the time to at least have an idea of the foreclosure procedures in the state where you are investing if you are making a loan.
Good luck with your investing!
-H. Quincy Long, CEO and Founder of Quest Trust Company
If you have any questions about Self-Directed IRAs at Quest Trust Company, our specialists are here to help. Schedule a free call today!