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Tax Lien Certificates

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So What Are Tax Lien Certificates?

If 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.

Every 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.

But 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.

When 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.

But 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.

For 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!

 

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