What Are Tax Lien Certificates?
you're thinking of investing in tax lien certificates, it's
important to understand what a tax lien certificate
is, and how tax liens work.
county in the country levies property taxes on land. Each
year property taxes are due on all properties, be it a house,
an apartment complex, a parking lot, a plot of grass, or
even a huge shopping mall. These taxes are used
to provide services in the local community: police,
fire department, schools, road work, etc...All these things
cost money, and all that money comes from property taxes.
what if the owner of the property doesn't pay their taxes
by a certain date? The county still needs that money to
provide the afore mentioned services, so they levy a lien
against the property for the amount owed in taxes. The county
will proceed to auction off a tax lien certificate at a
tax lien sale. The tax lien certificate is a first
position lien on the property, meaning it takes
precedence over all other liens, even a bank mortgage.
the owner finally pays off their taxes, plus interest and/or
penalty fees, the county then cuts a check to the investor
for the initial principal on the tax lien, plus whatever
interest or penalty fees are due. The owner gets to keep
their property, but has more time to pay off the taxes;
the county gets to pay its employees and provide services,
and the investor just made a nice chunk of money for very
little work by investing in tax lien certificates.
wait! What if the property owner doesn't pay off the lien?
In most cases the investor either is allowed to foreclose
on the lien, or simply acquires the property
free and clear. This really is a WIN/WIN
situation. But don't count on getting that property free
and clear every tiime. The redemption rate on tax lien certificates
is over 90%, which is why you're investing in the first
place; to earn a solid, high percentage, return
on your investment.
more detailed information about tax lien certificates check
out the Tax Lien
Certificate FAQ. If you're still not convinced of the
benefits of investing in tax liens read my extremely persuasive
page on why
you should invest in tax lien certificates!