What is a Property Tax Lien and a Tax Lien Sale?
A tax lien is a form of security interest given over an item of property enforced by law to secure the payment of taxes. A tax lien can be imposed for delinquent taxes owed on real property or personal property or in the event that one fails to pay income taxes and other taxes. In most jurisdictions when a person is late or fails to pay their property taxes they are issued with a tax lien which can be later auctioned as a tax lien certificate.
The government uses tax lien sales to collect delinquent taxes owed on real property. Another way that the government can collect their real property taxes is through a tax deed sale. A tax deed sale is a mandatory sale that is conducted by a governmental agency to recover tax on real estates. Tax liens investment can be a safe and profitable business if you conduct proper and careful research.
After the tax lien certificate has been auctioned the buyer who places a successful bid is given two things. The first thing is a state authorized yield from the lien which the delinquent tax payer must pay to have the lien released. The other thing is a title to the property if the delinquent tax payer fails to pay up. This however is not done immediately because the jurisdiction gives the taxpayer a grace period to pay up.
What attracts investors to tax liens is because of the title to a property at a significant discount and because of the fixed percentage rate on tax that has been authorized by the government. These two benefits are not available in other real estate deals. However, if as an investor you do not conduct a proper bankruptcy and title research the tax lien becomes valueless.
Tax Lien Certificates are financial notes that you can buy from several state counties across the country. The certificates are issued in place of unpaid taxes by property owners in these counties. When people fault to pay taxes, counties lack money to fund their annual budgets. This resulted in the enactment of legislation that mandates the counties to collect their funds in other ways.
The counties which in this case represent the government, sell the unpaid taxes to investors who are ready to pay the taxes for a lien against the property . They also get the right to earn high interest rates if the property owner pays up the taxes in the end. If the property owner fails to clear the taxes and the interest they have accrued, the tax lien gives the tax lien certificate owner the right to that property. In such an eventuality, the tax certificate buyer can file some paper work to give him legal right to full possession of the property.
Investing in tax lien certificates is worthwhile because it gives you a chance to earn higher fixed rate returns. These certificates earn much higher rates than certificates of deposits and fixed rate return investments. Tax lien certificate investments also come with their share of risks. If a tax lien sale is done and you happen to get unusable land then your investment becomes worthless. Unusable lands include landlocked access, common property, swamp land or deeded private parks.
Some properties also end up being not worth filing for if the amount you have paid in taxes is not worth what you get. In some cases the county can make an error and sell a tax lien to a property whose taxes have been fully paid. The counties take long to refund you the money.
Another benefit of investing in tax liens is because you can conduct business from the comfort of your home via the internet. This kind of investment also gives you a lot of opportunities and it is less competitive. There are some basic considerations that you should make before venturing in tax lien investments.
Every state is different from the other so you should find out about: the default interest rate, the bidding process, the additional penalties, the tax lien expiration period, the redemption period and finally how subsequent taxes are dealt with. When purchasing a tax troubled property it is important to do proper research on it before logging in and placing a bid. You should assess regional foreclosure lists frequently to find out what types of property are available. A background check on the authority that is conducting the auction on behalf of the government is important.