The tax portion of the term actually regards to property taxes that were not paid. According to the dictionary, lien is:
“The legal claim of one person upon the property of another person to secure the payment of a debt or the satisfaction of an obligation.”
Tax lien uses an individuals property as collateral to ensure the settlement of a tax-related debt owed to another person or entity. While initially that debt is owed to the government that imposes the taxes, after a set amount of time these government agencies will auction unpaid debts to recoup their own expenses more quickly, opening an opportunity for savvy investors.
Tax liens are a result of the federal government and are not only 100% statutory, yet the concerns of the investors are protected by each state that they buy it from. To their benefit, State governments will then be the one responsible for the entire tax lien process.
Tax lien certificates are usually sold at tax sales organized by a county or municipal official. It is ultimately open and safe due to the fact that tax lien investors actually pay the officials the required taxes.
If the lien has already been handed over to the investor from the government, the investor will then be entitled to control the stated interest that is made by the government. The interest can reach from 8% to 25% per annum.
The property owner will have a set period of time to pay the new total (taxes, interest, and other related fees). If the property owner fails to pay within the arranged time frame, the lien now gives the investor the right to foreclose on the property.
Tax lien investing is a high yielding investment. Tax lien certificates are an attractive investment because you don’t need thousands of dollars to start and you don’t have to pay any brokerage fees.
This is an investment that you have to be able to devote some time to. If you research the properties attached to the tax liens and make good purchases, then you should be overjoyed to gain the property through foreclosure. The list of properties that you get before the sale from the tax office, in most cases, does not tell you anything about the property. Frequently this list will only consist of the tax ID, owner of record, and amount owed.
The first step that you should make prior to buying properties is to take a look at the assessment information on your desired property and locate it. Visiting and seeing the property is always the best move because this would assure you that the assessment information has been kept updated. Also, see to it that the property you are acquiring worth more than the amount that has been owed for back taxes. Bear in mind that there is a chance that you have to pay the taxes on the property throughout the period of redemption (if the property does not redeem) before you can actually foreclose on it or apply for a deed.
Foreclosing on tax lien properties will really certify you a profit that is usually several times your initial investment.
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