Hey gang, this is Mike with My Real Estate DOJO and this lesson is about how to make money by buying property and having liens on it. If you don’t know what a lien is, please watch my YouTube video about liens and different types of liens. Let me say for me personally, you can make money as an investor buying property that has liens on it.
For more retail buyers and rocky investors, when they talk to a motivated seller or when they are buying a property as a retail buyer, they come across a property that has a lien on it, they stay far away from it. What I mean by lien, I am not just talking about the first positioning lien the most houses in America have, they are like their mortgage lien.
I am talking about second liens, for example, you have a mechanical lien, a property tax lien, a judgement liens, you might have the city do liens, because they didn’t cut the grass on the property, credit card or hospital liens or somebody sued the seller and put a lien on the property.
Let me talk about some of the things that I’ve done that you can make money if a property has a lien on it. Say that you talk to a motivated seller and the property has a lien, you’ve got to figure out that type of lien this is, because you can still make money on the property depending on what type of lien this is. Let me give you a couple examples or one example at the very minimum. I am talking to the seller, the seller has the first positioning as a mortgage lien from a bank.
The second is a mechanical lien. Because of the mechanical lien, if I was able to negotiate with the lien holder I could make a good amount of money. What I did was I bought this property subject to the underlying mortgage and then subject to the underlying lean, which is a mechanical lien. Once the property had closed, cause I bought it subject to, because I didn’t pay off the lien, nor did I pay off the mortgage, I just start making the payments of the property.
Once the closing happened as the owner of the property I had to give him a hand, then I would go and negotiate with the lien holder, who in this case was a small contractor, ok? Let’s say the contractor had a thousand dollars against the property through a lien for a couple of years. At this point I had a couple of options. As I’ve turned this property into a rental property I didn’t have to run around and sell the property and I didn’t have to you use a traditional company that closed it by title policy, therefore I didn’t have to pay this mechanical lien guy anytime soon.
What I could have done is hold off, kept bringing the property up month after month until the expiration of the lien came. The lien expired, at that time I could sell he property if I wanted to exit the property and not pay that lien holder. That underlying lien holder has the right to go an renew it, but again if you are dealing with amateur lien holders like a small business, an individual, contractors, suppliers- they are not professional lien holders, so when the lien expires, they are likely or there is little probability that they are going to renew. If they do renew and go back to the same strategy and just rent the property out until it expires. That would be option number one.
The other thing I could do is actually go to the lien holder, because I bought it in my LLC and I am going to the lien holder lets say as Bob or my other company or just me as an individual and I say I am interested in buying this lien from you. I am not telling then that I am going to pay it off, I am not telling them I am associated with the owner of the property.
I am just going up there as myself or as a different company that I own and I say: “Hey, you have a lien for $10 000, I specialise in buying liens. I am willing to give you $1000, $2000 or $3000. I am willing to give you 10-30% on the dollar buying this lien”. Why these lien holders are willing to sell them for so cheap is a couple of reasons. Number 1 reason, which is the most important reason in my mind is that the lien holder had a payment attorney, that guy had a judgement they had to go to the clerk’s office, pay a couple hundred bucks, follow it and for years they not received one penny.
On top of that, they have their own supplies and their own equity to do the work in the home. In a nutshell, is either out of money to do the project or out of money for legal fees or out of money and have spent couple of years and haven’t received one penny and on top of that they had to pay good money on top of that money already. Now they have you knocking on their front door saying “Hey, I want to buy this lien from you guys”. You guys own it for $10 000, but I am willing to take it for $1000. There is a good probability that lien holder will say “I am willing to give it to you for 10 cents, 30 cents with whatever it maybe, guys”, because they are so tired. So option number 1 was just let the lien expire.
Option number 2 is go actually as a third company and let the lien holder know that I want to buy that lien from them, pennies on the dollar and start negotiating it that way. Once that lien is payed off, there is going to be a waiver and it releases you as the owner of that property – the landlord. Now you can actually sell the property if you want to and get the title policy. That means you don’t have to pay that, because you bought it for pennies on the dollar.
So that’s two ways to make money, when a property has a lien. Some other liens, for example, if they are a professional lien holder and they are in a different state, it is going to be harder for them to come to Texas and go to court, so they will probably be easier to negotiate if they are locally based in my hometown or they are professional lien holders and they are based in my hometown.
They are going to fight harder than if they are from California and it would cost them a significant amount of money to hire somebody. There are a lot of factors involved in this situation. Just remember that if a property has multiple liens on it, it doesn't mean the deal is a bad deal.
You have to be a clever investor and figure out how to solve the problem for you to create a win-win situation for the seller, for the line holder and for you in this case. So guys, I just showed you an example how to make money even if the property has a lien in America.
If you are willing to hustle and bustle, you’re willing to take action, you’re willing to invest in yourself, you’re willing to hire professionals that are going to show you the roads, like attorneys, who know how to deal with these liens. Or title companies that exactly know what to do or a mentor who knows what to do, then you’re probably going to be a step ahead and make money for yourself, compared to someone, who may see it, think its trash.
A more experienced investor will see that and will that it’s money right there, easy money right there. Again, there is noting easy in life, since the investor has the experience it makes it a lot better than an investor that doesn’t have the experience if that makes sense guys. Go out there and hustle and bustle. Don’t take no for an answer.
This is America. Again, if you like these videos, please like, please share, please leave a comment. If you have any questions or comments, leave them below.
I’ll be happy to answer them as soon as I can.
Have a great day and talk to you later gang!