The tax portion of the term typically refers to unpaid property taxes. The dictionary definition of 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.
Investing in tax liens is not just 100% legal but you are also protected too. This is because tax lien is a product made by the federal government and therefore you are safe as you would be protected from the state that you bought the tax lien from. Also, for your convenience, they would be the one to handle the whole tax lien process for you.
Also, buying tax lien certificates is completely safe and open because the investors are actually true to their words and do pay the required taxes imposed. These certificates can be bought at tax sales where a county or municipal official is conducting it.
Once the lien has been transferred from the government to the investor, the investor is entitled to collect the stated interest that is set by the government. This interest can range from 8% to 25% per year.
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.
Investing in tax liens is a highly profitable investment. This is because you do not need to have a very big sum of money to be able to invest and it does not also require you to pay for any brokerage fees. Thus, tax lien certificates are very attractive to many.
Tax lien certificate is an investment that requires your attention and time. If it happens that you have made good purchases and have research the properties that are attached to the tax liens, then you would most likely be happier to acquire a property through foreclosure. However, the list of properties that you will usually have before the sale from the tax office is minimal only, in which it would only tell less about the property. Most often than not, you’ll only acquire the tax ID, amount owed and owner of record.
In addition to this, when making your first investment, it is highly advisable that you have a copy of the assessment information first and then locate the property. If you already have the address, it does not hurt if you pay a visit to the property and see for yourself if the assessment is updated. Also, through visiting, you will have an idea whether the property costs more that what is owed for back taxes. Always bear in mind that there is a possibility, if it does not redeem, that you will have to pay the taxes of this property throughout the period of redemption before you can actually foreclose on it and apply for a deed.
Yet, if you invest in tax lien, foreclosing properties will surely make you gain more profit and is several times bigger than that of your initial investment.
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