Tax Lien Investing 101
Tax Lien Certificates are proving to be an extremely popular investment for people who have some ready cash and are looking for a high return on investment secured by real estate.
Who Can Buy Tax Lien Certificates?
Wealthy families, large trusts and institutional investors love this type of investment. Why? Because it's one of the rare occasions when as a private individual you can essentially have their investment backed by real estate and enjoy quasi-governmental power to enforce their rights.
For example: Let's say you buy a lien for $500 and it goes unpaid and uncontested so the lien holder (you) gets the property as collateral for the debt. The best part is that the local government is on your side helping you enforce your rights and protect your investment in the process. Kinda cool!
So How Are Tax Liens Created?
When a property owner cannot pay the taxes on their real estate holdings, the town or county puts a lien on the property. A lien is simply a method of ensuring that in some way the tax will eventually be paid.
By putting a lien on the property, the government is taking control of the land until the property owner or another entity pays the taxes. In essence, the real estate is being used as collateral on the unpaid property taxes.
In many states when a landowner is delinquent in paying their property taxes, the county will issue tax lien certificates that can be bought by individuals or institutions.
By purchasing the certificate, you’re offering to front the cash for the taxes that are owed. Your investment allows the property owner to buy some time in order to get the money together to pay their tax bill.
So Do I Own the Tax Lien Property Now?
Not exactly, when you purchase tax lien certificates, you are not buying the actual property. You are purchasing a note for the property on which the taxes are owed. The note has a specified redemption period. It earns interest each month the taxes are not paid. If the property owner does not pay the taxes by the end of the designated redemption period, then you may request the deed and become the owner of the property.
Usually you can purchase the property outright for the back taxes owed and any interest and penalties. Search our site for more tax lien investing tips on how each state deals with delinquent property taxes and which states sell tax lien certificates or tax deeds.
You can also find a county using our free US county search directory and call your county and ask them directly.