An Introduction to Tax Liens

August 23rd, 2008

What is a Tax Lien

A tax lien is a lien put on someones property by law to secure payment of taxes. Tax liens could be imposed for failure to pay taxes on real estate or personal property. Liens could also be placed for failure to pay income taxes. After a lien is imposed the property comes up for sale usually on a county or state basis. In some states law allows the tax lien to become the first lien on a property and that lien will be turned into a tax lien certificate and sold at auction.

After a successful bid is placed at auction the buyer usually gets one of two things. A high rate of interest   from the orginal owner to redeem the property or after a certain time the winning bidder gets title to the property. With a fixed interest rate higher than many if not all real estate investments, or the chance to get a piece of property at a reduced price, more and more investors are getting involved in tax liens.

Do Your Research

Getting a good return on your investment if the property owner redeems or actually picking up a property if the owner defaults seems like a win-win situation. But some investors find out the hard way that if they don’t do proper title work or there is a bankruptcy involved the lien they bought at auction is worthless.

If the owner of the property has declared bankruptcy, creditors or the IRS may have priority over the tax lien investor and the investor will be buying not much more than a worthless piece of paper. Or in some extreme circumstances the investor would be responsible for liens on the property. Also when these properties are auctioned off they are listed by lot numbers with just a vague description. So you may be getting a beautiful two story house or you may be getting an abandoned alley.

The only way to be sure you are getting a free and clear property is to have a professional go through the records checking for other liens and bankruptcy. You could do this yourself but unless you have been doing this for a long time or you are an attorney the best thing to do is hire someone. I have seen attorneys do searches for as little as $100 per property to much higher rates depending on how much time is spent. As far as seeing what the condition of a property is, the best thing to do is actually visit the property prior to the auction. You can obtain an address if you have the property description by visiting the county tax assessor’s office.

Who Can Participate in Tax Lien Sales

If you can legally own land in the US you can participate in tax lien sales. Tax lien sales in most cases require you to pay for the property on the day you make the successful bid. You may have up to 48 hours but I haven’t seen time limits any longer than that. If you would make a successful bid and not be able to pay it you would lose the property and possibly be banned from bidding at auction ever again.

Online Resources for Tax Lien Sales

There are many online sites with information on tax lien sales and lists of sales but the two I utilize are Bid4Assets and Ebay. Remember though, if you are bidding on property outside of your area hire someone to do research on the property and ask them to send you pictures.