Episode Transcript
[00:00:00] Speaker A: And it was.
The gun was loaded. It was pointed right at the industry. If you make some good money on that property, you may want to squirrel some away just for a rainy day, right?
[00:00:10] Speaker B: Do I need to be worried? Do I need to change how I invest?
[00:00:13] Speaker A: By no means am I saying that anytime you invest, you're going to have personal liability, but you could potentially be on the hook for those additional amounts. I think that there are some landmines that are out there, and unfortunately I think that this is not the last word on these issues.
[00:00:33] Speaker B: Quick note before we continue. Nothing we discuss in this podcast should be considered legal, financial or investment advice. Tax lien laws vary significantly by state, and every property situation and investor is unique. Always consult with qualified legal and financial professionals in your jurisdiction before making any investment decisions.
Now let's get back to the show.
Today's episode is part two of a conversation that really matters for anyone investing in tax liens, tax deeds, or distressed real estate debt.
When we last had Matt AB on the Innovative Investor podcast, the Supreme Court had just heard arguments in the Pung vs. Isabella county case and everyone was still guessing where the justices would land. We even broke out the crystal ball for Mr. AB to give us his predictions, and we're going to hear how accurate he may have been or not.
And now that the ruling is out, the dust is starting to settle and the question on every serious investor's mind is simple. What does Pung actually change in the real world? And what should I be doing differently on Monday morning if I'm a tax lien investor?
Well, welcome to the Innovative Investor Podcast, the show where we explore tax liens, distressed assets and property debt opportunities from your very first deal to a completely scaled portfolio. I'm your host Stephen Morrell, founder and CEO of Juristeed, and I've spent the last 20 years in real estate title law, including developing a program that transformed over 10,000 blighted Louisiana properties back into commerce after Hurricane Katrina. That work is what ultimately led me here on a mission to democratize access to delinquent property tax lien investing and make it as easy as contributing to your 401k. My guest today is once again Matt AB a partner at Nelson, Mullins, Riley and Scarborough in one of the country's most active tax lien res and litigation attorneys. Matt represents tax lien investors, mortgage servicers and financial institutions across roughly 30 states.
I'm going to have to have you fact check me on that one. He's argued before the 4th Circuit in the South Carolina Supreme Court, and he's been a regular NTLA speaker for years. Most importantly for today's conversation, he's been living and breathing the Tyler case from a few years back and the pung case from just a few weeks ago, about a month ago, with investors and servicers in real.
If there's one attorney you want helping you interpret what this Supreme Court ruling means for your portfolio, your underwriting, your exit strategy, it's our guest today, Matt Abey. Matt, welcome back to the Innovative Investor Podcast.
[00:03:09] Speaker A: Thanks, thanks. I'm glad to be here. You're making me blush.
[00:03:13] Speaker B: It's all well earned, I promise you.
So, all right, let's get into it. What was your first reaction reading the opinion?
Anything part of it that jumped out immediately told you, omg, this changes everything.
[00:03:30] Speaker A: Yeah. So immediate reaction was maybe relief that I think that the industry dodged a bullet.
And it was, you know, the gun was loaded. It was, it was pointed right at the industry.
And I think we talked last time, there was some discussion even during the oral argument that the case really, if the justices sided with the petitioner, Mr. Peng, really could have spent, meant the end of tax sales in the United States, at least as we know them today. And so there was, there was some relief that we dodged that outcome.
As I have thought more about the case, though, I really am not sure that the case is really a win for the industry as a whole. I think that there are some landmines that are out there.
And unfortunately, I think that this is not the last word on these issues. I think that we might see some more litigation that comes down the pipe. So kind of mixed feelings.
[00:04:39] Speaker B: I have a feeling when you say the word might be more litigation, that you're putting that very nicely.
[00:04:44] Speaker A: Yeah.
Maybe hedging a little bit there, not necessarily inviting more litigation, but if there's anything attorneys are good at, they are good at making more business for themselves.
So especially those that are in the tax lien industry on the plaintiff side.
And I think one of the things that we talked about last time was that there's a Federal Statute, Section 1983, which is what a lot of these cases are being brought under. And one of the reasons for that is that you can get attorneys fees if you are able to establish that there is an unconstitutional taking. And so there's an incentive for plaintiffs attorneys to bring these types of claims and to really test the waters to see how far can they take this opinion. So I do think that there's going to be some more litigation that talks about what is fair market value in The. Not the run of the mill case, but in the outliers.
[00:05:46] Speaker B: All right, let's. Let's delawyer this for a minute for the non lawyers in the crowd. And so plain English, what did SCOTUS decide in the punk case? How did they define just compensation, fair market value, the two biggest definitions that had to be reached. What's the plain English version of what happened?
[00:06:05] Speaker A: Yeah, so let's reorient ourselves just for a second. Remember, there was a difference here. There was about 2,200 bucks in taxes that were. That were charged against the property.
Now unsure whether or not Mr. Peng actually owed those taxes. And I know that it's kind of crazy to say, wait, we're unsure whether he owed those taxes. And it got all the way up to the U.S. supreme Court. But there was a lot of questions about whether or not that $2,200 was owed.
But the auction price, meaning what the investor bid at the tax sale, was $76,000. And so that created about a $73,000, $74,000 in surplus proceeds.
But the property was assessed, and the assessed value was about $194,000. And then also there was a sale of the property by the bidder, the tax sale. After he had fixed it up over 18 months, he then flipped the property for $195,000. So roughly what the assessed value was. So the question that the court was wrestling with in Pung was what is the proper measure of just compensation? So when the Constitution says that the government can't take property unless it pays just compensation, how do you calculate that? Is that the $74,000 in surplus, you know, the difference between the taxes and the bid, or is it the difference between the taxes and the fair market value, which Mr. Peng said was 194, 195,000. Right.
So the court was wrestling with which of those figures do you use? And what the court ultimately said is in the run of the mill case, the baseline is you get the surplus proceeds. That's the measure of just compensation in the tax sale context.
But it left open the possibility that in the outlier case, there might be a different measure of damages.
And the court reiterated in several different parts of the opinion that when the tax sale is conducted fairly, then you look to that $74,000 in surplus, and that's the only thing that you get as a matter of just compensation. You don't. Fair market value doesn't even enter the equation. Right, Right. But it left open what is fairness. Right. What is. What is fairly Conducted. What, what is, what are the outlier cases? I mean, how, how bad does the procedure employed have to be or how odd of a, of a duck do you have to have before you can start looking past that, that surplus proceeds? And unfortunately, the court didn't give us any guidance on, on that point. I mean we're, we're just left to see what the next cases are going to say on that yet.
[00:09:00] Speaker B: And I was curious to know, you know, your opinion on the fairness of the process and where exactly they drilled into what the process is. Where, where can you measure fairness in the. Because you know, you have different, different processes across different states. You have tax lien auctions, tax deed auctions, you have over the counter auctions. You have, you know, like at, you have where the government is selling it, you have a, an investor is reselling it. Like in the Nebraska Continental case. I mean you have all these different nuances of. And when do you even capture fair market value? Is it at the tax sale? Is it at the, is it the midpoint? Is, is it at the ten years later? It seems like it's a moving target. How did they wrestle with all those different variables that, that really or did they that. That that change state by state?
[00:09:51] Speaker A: Yeah, so they took the easy route and didn't decide any of those questions. So one of the questions that you asked though did about when do you value fair market value in the general takings context, you would value fair market value at the point of taking. Right. You don't value it at a later, later date or anything is when you, you would lose title to the property. And so in, in. But what the, the punk case tells us is that we don't necessarily apply all of the traditional takings jurisprudence to tax sale cases. That those present a little bit different issue. And Justice Jackson talked about that in the, in the oral argument and she said, well, this is tax sale is a little bit different than the county taking your property to build a roadway or a railroad. Right? That you're just, exactly, you're just the innocent property owner. You're sitting there on your couch one day and the government official knocks on your door and says we're going to put in a sidewalk and we need 10ft of your property. That's a different animal than you affirmatively didn't pay your taxes and you were the one who caused the taking. Right.
So the rules I think we can see from pung are going to be a little bit different for a tax sale case than it is for a traditional imminent domain. Proceeding. And so the question about when you value, although the traditional rule is when you lose title, the jury's still out on that. We don't know the answer in the tax sale context necessarily, but a lot of the lower courts who have dealt with that in the past have talked about it's the time when you lose absolute title. So the time once you have no further rights of redemption and no ability to get the title back. That is the point of the taking. And that's when you would look at the fair market value.
But postponed. We're going to have to see what the courts below say about that question.
And then how does that apply to the different types of tax sales? Well, you know, Tyler applied mostly to the forfeiture type of tax sale. That was the tax sale at issue in Minnesota.
Possibly Tyler applies to the interest rate bid down method which we saw used in states like Arizona, New Jersey, now Louisiana, Louisiana, Alabama has a procedure like that.
And possibly Tyler applied to that. Well, pung is a little bit broader and it doesn't necessarily look at the mechanism by which the county sells the property. It looks at what was the result. Right.
Was the tax sale conducted fairly such that you can deviate from using the surplus and going to a fair market value. And so it's going to have to, we're going to have to wait to see how each of these states and each of the federal courts in those states apply pung to the particular type of state mechanism for foreclosing or collecting delinquent taxes.
[00:13:00] Speaker B: One of the questions I had, also kind of staying on this same line of questioning for a bit more, were states like Florida and now Louisiana, where you have a really a two part auction system, you have the sale of the lien, which of course you can still say that it's because the, the tax debtor failed to pay, that led to that event. Right.
And then continued to not pay that, that eventually led it to the expiration of this redemption period, this holding period, to then trigger a secondary of event which is sale of the property or foreclosure of the lien.
So is it your understanding or do you think that they act that this applies to both of those events? Like it both have to be fair or is one really the most important of the two that has to be conducted fairly?
[00:13:50] Speaker A: Yeah, so that's such an interesting question because if you're talking about the sale of the lien and then this auction of the title to the property, I think the focus is going to have to be on that second auction because that goes back to what I was just saying, which is the taking occurs when you lose absolute title to the property. And so as long as there's some mechanism by which the taxpayer can step in and avoid the loss of title, then you have not yet had a taking that has occurred. I think that's what the courts are going to say.
And because you can always go back and you can redeem and then challenge the extra amounts that you claim you had to pay in penalties and interest because you missed it the first door route.
But there is potentially an argument to be made that the process, although it has two steps, is kind of a unitary process that leads up to the taking. And so I think what you'll see are some delinquent taxpayers arguing that the entire process has to be fair in order for it to fall into the pung traditional baseline test that was announced.
So I personally think, though, that the law would be whatever is going to result, whatever step is going to result in the loss of absolute title to the property. That's really the focal point for the takings analysis. But I don't, I don't think that the litigants are going to stop there.
[00:15:23] Speaker B: Of course not.
So what was the biggest surprise to you from what the ruling was?
[00:15:30] Speaker A: Well, the biggest surprise to me was the fact that we had so many different opinions, right. That this was, this was a unanimous opinion, but then we had some concurring opinions as well. And, and I thought that Justice Thomas, he had a very interesting take on property rights. You know, true to form, he was a staunch advocate for property rights, and he talked about how he understood maybe that Pong, the main opinion, would create some administrative feasibility concerns, but that, that was really beside the point because ultimately the Constitution's takings clause is there to protect private property rights and the administrative ability to administer the delinquent tax process, that's a secondary concern. And so that was interesting to me. But overall, I think that the takeaway for me is the number of times the opinion talked about fairness, the number of times the opinion said in the baseline case that those are somewhat amorphous concepts in the wall. It's almost like the, the reasonable person standard, you don't, you don't really know.
[00:16:47] Speaker B: Or reasonable efforts from.
[00:16:49] Speaker A: Exactly, exactly. And you don't really know. So, but I guess what's most, most interesting to me is just the number of times that the question of fairness came up just because that's such an amorphous concept and you don't necessarily have guardrails yet from various different opinions about what is fair within this context. And that's what I think the lower courts are going to wrestle with.
And I think that's what the case law is going to have to develop is based on our history and tradition of tax sales in the United States going back to the founding of the country.
What really is fair in this particular context and what, what strikes me, and I guess concerns me from a, an industry standpoint is that's going to have to develop in the lower courts. And the way that you develop that a lot of times is through resolving factual disputes and factual questions. And so I don't know that every single case is going to devolve into some factual dispute. And you're going to have to really talk about the fairness.
But you could see a lot more turning to turning on factual questions, which means from a procedural standpoint, for the lawyers out there, some of these cases might not be decided on summary judgment. There might actually have to be trials to resolve some of these questions.
And that could take a little bit longer, and it could mean more time and attorneys fees before you can really close the book on your, your investment.
[00:18:29] Speaker B: All right, I'm a busy investor. I, or I'm, I'm like, I've heard about this punk case. I, I'm not a lawyer. I'm, I'm, I'm like, do I need to be worried? Do I need to change how I invest? Like, give me, give me the one or two sentence, like what just happened for the layperson or the investor that is wondering, like, how does this change what I'm about to go do with investing in tax sales tomorrow?
[00:18:53] Speaker A: Yeah. So how this changes your investment is that you have to understand and factor in the risk that Pong creates when you are bidding on the property.
Of course, everybody wants to win with the lowest bid. Right. You don't want to shell out more than you have to.
But the lower your winning bid, the more likelihood there is and the difference between what you bid and what the fair market value of the property is. And if that delta is very wide and you just get an absolute steal, you've got a potential risk there that the delinquent taxpayer is going to come back and argue that they are entitled to the difference between the fair market value and what you bid, rather than the difference between what you bid and the tax sale. So I don't think. And again, that's not in every single case. And it's not just a pure.
You don't just do math, and that decides whether or not you have a taking and a risk, but the wider that that distance is between, you know, what, what the property's worth and what you bid, the more risk you have.
[00:20:03] Speaker B: And that's a great segue to the next part of next line of questioning I have for you because it was starting to touch on the, the, the Tyler case. Right. And because, and I, I, you know, for those of you that, that have seen the podcast here before and heard Matt talk before or just in the industry and have heard about the Tyler case from years back, it, it really focused on what does the government do with this surplus that gets created from a, a foreclosure of, of property. And that it was context was still tax sales, but it's, it doesn't belong to you or the state. It belongs to whoever's next in line to receive it from a, from an ownership or a lien holder standpoint. And there has to be some fair mechanism to try to return that surplus to the rightful owners. And that was really what Tyler focused on.
So it seems to me like if, if the take, if the number one takeaway from the punk case is, is from an investor standpoint is thinking, okay, this property is a huge, you know, condominium building, right. There's a big property and it's, you know, I don't know, 50 times the what I'm paying for the delinquent tax lien to own that tax lien.
To me that falls into this, this, this you should be worried bucket. Right. Or you should be the risk might be greater. But is that really true if the Tyler doesn't Tyler protect the investor's purchase of just the lien and allow the, the rules regarding surplus to take care of that surplus that results if they're foreclosure to protect the owners where that you don't have to really worry about the homeowner coming back because Tyler protected the surplus for them. Why do they still have to be worried about that now?
[00:21:47] Speaker A: Yeah. So in the, in the normal run of the mill case, you're exactly right. As long as there's some mechanism to claim that surplus, you should have some protection.
But there are unique cases out there where, let's take the facts of Pong, for example. The justices were very, I think very frustrated with the fact that we're at the US Supreme Court and we're not really sure if Mr. Peng actually owed the 2,200 bucks in taxes. Right.
That there, there had been all kinds of litigation in the state court about whether or not the tax collector really should have even assessed those amounts to him because of a principal residence exemption.
And I think that there's an old adage that of course, you know, bad facts make bad law. And I think the punk cases is evidence of that because they were frustrated with the fact that there was that wrinkle in the case about whether or not he owed it. So I think that what you might see is even in cases in states in which there's a mechanism for collecting the surplus, but if somebody is a tax sale happens and that person didn't owe the taxes or there was some dispute about whether they paid the right amount or paid the right year or something of that nature, you could have a situation where you jump off the normal route that would lead just to the surplus and you might start wading into, well, we need to look not just at the surplus but the fair market value and start looking at that difference. And so in those unique cases, you may have some additional liability over and above the surplus. Now, who has that liability? We don't really know. You mentioned the Nebraska case which suggests that the tax sale investor could have personal liability there. I think that question is still open. By no means am I saying that anytime you invest, you're going to have personal liability, but you could potentially be on the hook for those additional amounts. And that's unfortunate. Especially let's take my home state of South Carolina, for example.
The investor just shows up at the tax sale and bids. The investor doesn't service the debt related to the lien, doesn't collect any of the payments, doesn't handle any of the noticing. They just receive a tax deed one year after the auction if nobody redeems it and has no say in the process.
And under, under a combination of Tyler Pong and the Nebraska case fair that you mentioned, they could have some potential liability there if the tax sale was not conducted by the county fairly. And that just creates some inequity there that is concerning to me because you have no control yet, you could be on the hook for it. So it's one of those things where for your listeners, if you're an investor and you go to the tax sale and get just an absolute steal and you're way off what you have as the fair market value.
If you, if you make some good money on that property, you may want to squirrel some away just for a rainy day. Right. You don't want to go, go take that to Vegas and spend it all right away.
[00:25:03] Speaker B: Yeah. And it again, keeping my, keeping my investor hat on, you know, or the, on behalf of the listeners.
I'm wondering, you know, because the processes of the systems of selling tax sales or tax liens is different state by state. And sure that there's not 50 different versions, but they vary state to state.
I would guess that this impacts certain states more than others.
And with status quo. Right. Assuming nothing changes. And so one of the questions I have if I'm an investor is especially now that it's so much easier to invest across state lines regardless of where you're physically located, where it used to be. Just you'd go to your local county and you know, sale, et cetera.
Is where should I be going? Like are there. If you can we rank the states now post Pung and say that hey, these are the most pung friendly states and these are the ones with the lowest risk.
Does any state jump out to you right now as saying like, oh, this one's probably already pretty good or this one, I wouldn't go invest there tomorrow if I were you.
[00:26:09] Speaker A: Yeah. So I do think Pung has the potential to affect all types of tax sales regardless of the style.
But if I was going to say where the safe havens might be, I think that there is. You have more arguments against liability related to Tyler and Pung if you have invested in a state that the mechanism they use involves an open auction of the property up to whatever the market decides is the proper value.
So states that also have judicial involvement, court involvement in the process.
I think we've talked about this before. North Carolina has judicial foreclosures of tax liens.
If the court has made sure everybody's received process has an open auction of the property up to fair market value. Those are slightly more insulated, I think, than a case where it's a private kind of county auction or the tax investor, tax lien investor is doing their own noticing and their own marketing and sale of the property. I think those are, those are slightly different. But again the focus is going to be was, and I think the opinion said fairly conducted four times or so.
[00:27:33] Speaker B: Yeah.
[00:27:33] Speaker A: And talked about the baseline five times in the run of the mill case. As long as the. There was fairness in the way that the notice was sent out and the. The public was able to be involved in the tax sale, then there should be some protections, at least some arguments against liability for the investor.
Yeah.
[00:27:52] Speaker B: It seemed this was, this was something that we talked about in the first episode and I was kind of weighing in on my, my predictions and of course, of course you and I have had this conversation multiple times.
I kind of thought that the way that the Supreme Court had to go, which was really the most precedential way to go, which was leaning on reasonable efforts.
The most obvious precedent for that is the Mennonite case. Right.
And it has stood the test of time, if you think about it, because reasonable is a subjective thing, and that could be a, that could be measured at any point in time and changed what the answer is. But the basis of the evaluation doesn't change. Was it reasonable in 1983?
You had to look in the phone book, and in 2026, that would be unreasonable to be your efforts. Right. And so it, but it's the same principle. It's reasonable efforts.
That phrase has never changed. And so I thought that the Supreme Court would probably lean on that successful precedential basis. And it seems like they might have done that here in the sense of like, well, we're chasing this arbitrary definitions of what is fair market value. Is it the assessor? Is it what it sells for all kinds of stuff. But just, hey, did you conduct the process fairly? You know, did you. Was there. Was it the best possible result that you could, that under the circumstances, did you, did you advertise it? Did you put it on your website? Did, did more than one person show up in a big county like, like, whoa, okay, that's pretty good indication.
Do you agree that's kind of where this is going to end up in litig. In post. Post Supreme Court litigation is going to be deciphering what was reasonable under the, under the circumstances for conducting the auction itself?
[00:29:38] Speaker A: Yeah, I agree with that. I think the day before Pong came out, we were, we were all arguing about price and we were arguing about what surplus was available. And, you know, was it reasonably available?
I think today we're going to start arguing about the process.
And so I think that when you're looking at fairness, you're not, you're not just writing on a, on a blank slate. I think that you're probably building on some of the themes that were in Mennonite and Jones v. Flowers and the cases that have developed applying the reasonable efforts. And when you're talking about notice, but you're going to see more litigation about actually the mechanics of the sale within the history and tradition of tax sales in the United States. And I think that you're almost going to see a presumption that is going to develop that we presume the tax sale was conducted fairly so long as each of the steps in the statute were followed by.
But if there's any deviations, we're then going to look at how did that impact the overall fairness of the, of the tax sale in the sense of did it produce, produce a fair price open to the public where everybody came in and had the ability to drive that price up as close to fair market value as possible.
[00:31:06] Speaker B: I also have a prediction too, on the same token, is that I think that if you're not conducting in your auctions online yet, you probably need to go ahead and make that move.
I mean, you could probably make a great argument for that before the punk case for a lot of reasons. But you know, I mean, even like smaller counties, et cetera, it seems to me like again, it's a measure of fairness as of the moment you measure it, right? So 20, 26, midway through, you're not online.
That's not normal. Like that's, that's, you know, look, that's where people go look for advertisements. They go, look, you know, where's the, where do you look for in obituaries? Not in the paper anymore, right? It's online.
So it seems to me like that measure is going to force and it might be, make, bring more consistency to how auctions are conducted across the country because everyone's going to be chasing a single standard, which is what is reasonable today.
And that might be an online auction. That might be where it's, it's more widely circulated through, through, through notifications, et cetera. But it seems to me that that also is going to impact online auction companies, right? So counties who are engaging with auction companies and say, hey, what's your process like? I don't know if that's good enough for us. You know, it's going to, it's a lot, lot more not quite as simple as just saying we're online, right? It's going to be like, so anyway.
[00:32:31] Speaker A: And maybe you do more as a tax collector than just put an advertisement in the newspaper that says, hey, we're having a tax sale next, right?
You got to give some more notice not just to the taxpayer but to the public at large so that they know the tax sale is coming and have the opportunity to come and bid and again, bid that price up to as close to fair market value as, as is warranted under, under the circumstances. Because again, you're, you're never going to get fair market value. Let me say you're almost never going to get fair market value in the tax sale context because it's not an arm's length transaction where everybody goes into it knowing the status of the title and the condition of the property. But if you have more people there, the chances of it bidding up close to fair market value are greater.
[00:33:19] Speaker B: Right, right. Okay, final segment here is where, as we warned ourselves before we started, we could end up talking about this forever. And we do want to get cut to the chase and give our listeners some actionable information that they can take with them into their investment decisions tomorrow.
First off, I think this is a long road. I think this is going to, as you pointed out, this is going to invite more fact specific litigation down in the lower courts, which has yet to happen, of course. And so I don't think anything immediately like 20, 26 tax sales that haven't happened yet. I mean, I don't know if that's something that should be weighing on any different opinion from you.
[00:34:02] Speaker A: Yeah, I think that the tax sales, you got to look both forwards and backwards. I mean, pung's going to have applicability to tax sales that have already occurred, even though to some extent you wouldn't have had the ability to change any process.
And in fact, that, that to some extent is what happened in Pong. At the time that the litigation began, Tyler hadn't even been issued. And so it was, it was a prior tax sale. And so I think you can see that back to the statute of limitations, we can. That's a whole nother podcast. But let's say two to three years worth of tax sales could be affected by pung. And then on a going forward basis, I think tax sales could be, could be impacted.
[00:34:43] Speaker B: Yeah, I love that thought about looking at, looking behind you rather than just.
And I've been asking you questions about what next, what next? But like, okay, I'm an investor, I've been investing for years and I have a portfolio and this is unredeemed. Like I'm sitting on a, maybe a time bomb. Like am I sitting in a. With a bag of liability because of the properties came out of these processes that were unfair?
What should I do?
Do I differently now?
[00:35:10] Speaker A: Well, in that case, you may want to do your own assessment, get some legal counsel and look at the state procedure and try and see, do some sort of PONG analysis on your portfolio. And then that way, you know, do you need to take some extra steps to try and generate a redemption?
Or if you have a taxpayer that comes to you and says, hey, I didn't know that you had my lien, I think it was wrong. Maybe you're more willing to settle that case if it was within the last two or three years, rather than run the risk that you are successful in clearing their interest out through a quiet title or foreclosure. And then you turn around and get sued under a 1983 action for a taking.
Because remember, as I said at the start, you're not just going to pay what the difference is. If they are successful in fair market value, you're also going to likely pay for their attorney's fees. And so maybe you're more willing, at least for those within the window of the statute of limitations to, to, to settle those cases or try and find a workout, you know, work, work with the taxpayer to get on some sort of lease process or something like that so that they can redeem their property that way.
[00:36:26] Speaker B: So one last thing here on the.
From the investor standpoint, you know, and I'm going to switch back to looking ahead because looking back is a little bit more nebulous. Right. It's sort of a.
How is this going to be applied? It might not be determined for years to come with subsequent litigation, but we do have a kind of a better feeling now for what this means, looking forward, what it isn't and what it is. And I'm wondering like, okay, I have X amount of dollars I want to, I want to deploy in tax liens.
Hey, I'm first question is do I want to do it at all? And you know, well, that's a bigger question that I don't know that this, that this changes that necessarily from a, like a nuclear standpoint. But you know, but should I push this into Florida, Louisiana, South Carolina, Texas? Like, you know, where, where would be if you were advising somebody, which you're not advising anybody, of course, but what if you were, where would you advise yourself? Like, I would probably put my park this money over here because that's their system is pretty tried and true and it seems to be consistent with what Peng was saying. You know, where would you tell investors to go?
[00:37:38] Speaker A: Yeah. So I think that you can appropriately avoid any cases or any states that have harsh results.
So let's take Minnesota, for example. Remember in Tyler it was an absolute forfeiture state. If you didn't pay your taxes, you absolutely forfeited the property. So any states that, that work like that, I would want to try to avoid. Now of course a lot of them have changed their tax sale procedures in the wake of Tyler, but still I'd want to try to avoid those.
Some others that I might try to avoid are again, those that have an interest rate bid down method and that don't necessarily require the public auction of the property.
I do Think that there were some changes made in states like New Jersey, for example, where they have that interest rate bid down method, but then as a part of the foreclosure process, the taxpayer can now request a public sale of the property. And so I think that those things are, you want to look for mechanisms like that because there's still a case, Nelson, that's mentioned in the punk opinion which suggests that, that that procedure is constitutional and is valid. So you want to take refuge, I think in states again, where auction of the property up to the fair market value is, is the appropriate, the appropriate process and ones that, you know, are competitive, I think that the competition is, is really when we're talking about, when we're talking about fairness, I don't think we're talking necessarily about fairness in the sense of fair notice to the taxpayer as much as we're talking about fairness in the sense bidding and the open nature of the bidding in order to bid it up to fair market value.
I think avoiding states where you play a significant role in the noticing and the sale and things like that are, would be a good idea just because those could potentially create some traps for the unwary, but it could also create the personal liability that we saw in the Nebraska Supreme Court opinion. And so I might be looking to states really that have more open and robust auction procedures.
[00:39:58] Speaker B: Yeah. And it brings up a whole new level of due diligence that was not relevant before. I mean, if you're an investor and you're preparing to do the right thing, all the courses and the gurus in the talks and the speeches have all said, you know, go look at the property. Right. Go do your drive bys, go look at how much is owed, go how much? You know, what, what are the, what kind of mechanism does the state, is it a tax lien state or a tax deed state? All these things that have been really over and over and again over the years. It's never been is the auction fair. It's never been is this is like is there going to be a big disparity between the fair market value and the tax lien? Those questions have just never come up really. Not, not in the sense of, of should I bid or where do I bid? And it hasn't directed the investment so much. And now it's, we're saying, hey investors, you need to really start thinking about this. And if I'm an investor right now I'm thinking like, how do I do that? Like, like how do I, how do I pull that off? Like, I get I hear you, Matt. I hear you. You're telling me this is important now. Okay, I believe you. Now what, how do I do that?
I think that the answer to that question is going to be we need more resources, we need more ability to support that. And you know, it's something that in, you know, with our company jurisd, that we're, we're absolutely doing right now is arming the investors with these resources that are, that are fluid, that are, that are changed with the times. Right. That give you that. Because at the end of the day, you're trying to just make money without having too much risk. Right. So you're trying to have a feeling of comfort, trying to have a feeling of confidence and of command over, over the decisions you're making so you can make a smart investment decision.
And if I, if there are too many unknowns, you're going to say, I can't, just can't deploy it. I can't, I can't make that decision.
So what can we, what can investors, what can, what's going to happen with, with the, you know, resources and maybe support supply, support companies that, that investors might need to rely on to regain that comfort, that confidence to be able to overcome these new challenges.
That's gonna be interesting to see.
[00:42:03] Speaker A: Yeah, it is, it is. And, and look these, these are investments and all investments have different types of risk.
And, and the tax sale world is, is no different.
Up until Punk, the risk really was that you had a, you invested in a void tax sell and you end up losing your interest in, in that property.
Now I think there's, there's more, you've got more skin in the game just because the combination of Tyler Pong and the Nebraska case could mean that you're dipping into your checkbook. At the end of the day, if you had a tax sale that wasn't conducted fairly, meaning not fair notice and not notice to the public sufficient to drive that fair market value or that bid up towards fair market value. So, but again, I don't want this to be doom and gloom for every investor because as I, as I mentioned, the word baseline is mentioned five times in the opinion. And the traditional or the run of the mill tax sale that is conducted according to the state and the country's history and tradition of tax sales which goes back to the founding, those aren't going to be touched. It's really going to be the unique situation in which someone did not owe taxes and the tax sale was conducted, or the tax sale that's conducted in the basement of A tax collector's office with no notice to the public, which I don't think really happens in this day and age.
So it's going to be unique cases, going to be rare cases in which we are deviating from the baseline case and going in addition to the surplus proceeds as some sort of measure of damages. Right. And I mean, I think the opinion at one point it says to sum up just compensation in the tax sale context need not be based on a property's fair market value.
And I think if we start from that position and we really have to have a strong adverse case to deviate from it, I don't think it's going to impact quite as many tax sales as others would have you believe it's going to be a rare or exceptional case in which you got to, you got to go above the tax sale bid when you're looking at fair market or just compensation.
[00:44:22] Speaker B: I think that's right. I think that's right. I love something you said earlier too, about, about ways that investors can start thinking about mitigating these potential risks that we still don't know how they're going to manifest. But one of them is you're sitting on a portfolio of unredeemed liens. It's like, well, maybe you don't want to just sit on them anymore. Maybe you want to make some, take some, you know, proactive efforts to liquidate those.
Maybe it's assigned them to someone else who is, who's more local, who's better position to deal with the homeowners. Maybe it's sending out notices to shake the trees for redemptions, but something rather than sitting on it waiting for mailbox money is going to be maybe your best interest. Obviously consulting with attorney like you. It's going to be good.
All right, we're, we're up against the time clocks. I'm going to bring us to our, the ending of the, of all our podcasts we do with the, with the, the deed line, the closing deed line. Because in real estate, of course, the deed is where the rubber meets the road, as it was evident here in the punk case, is when does the title actually transfer? It's when the ownership is changed. Right. So if you had to write one sentence and try, I know this is hard for people like you and I to reduce things to one sentence, but do the best you can.
What's the closing line of this moment in tax lien, foreclosure law? Something that captures what investors, homeowners, policymakers need to understand about where we are. Right now, in the pung aftermath, what would that sentence be?
[00:45:45] Speaker A: Because the United States has a strong history and tradition of tax sales, the average tax sale is not impacted by Pong at all.
But there are unique circumstances in which investors need to be wary about the process by which the tax sale is conducted, because that could have pretty huge implications for not just that property, but their entire portfolio.
[00:46:11] Speaker B: That's great. And that was, that was actually probably two sentences at most.
[00:46:15] Speaker A: Well, it's semicolon in between those two, maybe.
[00:46:18] Speaker B: Sure, sure, we can make it a compound.
Look, seriously, thank you very much. Once again, I feel like there might be a part three in our future. I, you know, once the first state court case comes out that says like reciting pung.
So this is exactly the kind of conversations, though, that I know our listeners need right now. After the ruling, while the market is still absorbing what it means and before everyone else is scrambling to retrofit their playbooks, you have given them a real head start today. So thank you very much.
And for everyone listening, we'll link to Matt and his firm Nelson Mullins in the show notes. If you're an investor with exposure in deed states, if you're managing a portfolio of any size, or if you're just trying to understand where this industry is heading post Pung, what do I do now? Please reach out to Matt's team for more assistance having the right legal counsel in your corner before the next wave of cases.
That cases lands are not optional anymore. It's part of the business.
And this is exactly why we built jurisdeed. Because the rules of tax lien and tax deed investing are being rewritten in real time, state by state, courtroom by courtroom. The investors who will win in this environment aren't necessarily the ones with the most capital anymore. They're the ones with the best intelligence, legal title and market before you bid. And if you want to stay ahead of cases like Pung, track state by state law changes and invest in delinquent property tax liens like the professionals without having to be one. Head to jurisdeed.com and get on the waitlist now. Our beta platform is launching in this year. We're building the platform that makes all of this manageable. And today, if today's episode was valuable to you, please subscribe, leave a review on the Apple podcast or Spotify and share it with at least one person in your network who invests in or is seriously thinking about getting into investing in tax liens. That's how we will grow this community and help each other out I'm Steven Morell. This is the Innovative Investor Podcast, and we'll see you on the next episode.
