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 the property of an individual as the collateral of a tax-related debt owed to another party as a security of the settlement. While the debt is initially owed to the government which places the taxes, after a certain period of time passes, these government agencies will then auction the unpaid debts in order to compensate their own expenses promptly, and to open new 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.
Tax lien certificates are sold at tax sales conducted by a county or municipal official. It is completely open and safe because tax lien investors actually pay them the required taxes.
If everything else has been settled, the lien will then be handed to the investor from the government. If this is already complete, the investor will now have the right to collect all of the stated interest that has been made by the government. The usual interest stated in the lien is between 8% and 25% per year.
To be fair, the property owner is given a time frame wherein he/she should pay a stated amount of the tax, interest and other related fees. But if the owner fails to pay on the given time, the investor will now have the right to foreclose the property because of the lien.
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.
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.
Steve Jonas is an expert in tax lien investing. For more information on tax liens visit theNational Association of Tax Lien Investors
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