How Tax Liens Work
I have found government Tax Lien Certificates to be a safe alternative to investing in the stock market. In case you are not familiar with tax lien certificates. Here’s how they work: Local governments (counties and municipalities) need property tax money in order to meet their budget. When property taxes go unpaid they need a way to collect this money. So they sell the delinquent taxes to investors. When you purchase a tax lien, you are not purchasing the property but paying the back taxes on a property in order to get the interest rate that the county would normally charge the tax payer. These rates could be anywhere from 8% to 36% depending on the state. The lien must be paid within a specified period of time or the Investor can foreclose on the property. That is the incentive for the property owner to pay off the lien.
This is a win/win situation for all parties. The local government gets the money they need to meet their budget. The property owner gets more time to come up with the money to pay their taxes (they get a high interest loan, but it beats having their property sold to pay the taxes). And the investor gets a very a good rate of return his or her investment.
But as you may know all states do not sell tax lien certificates. Some states will simply just sell the property to return the property as fast as possible to someone who will pay the taxes. So what if you don’t live in a state that has tax lien sales. Or what if you don’t live in the United States? The good news is that you can invest in tax liens online from your computer.
Here are 4 things that you need to know before investing in the online tax lien sales.
- Interest Rate
- Bidding Procedure
- Redemption Period
- Tax Lien Expiration or the Life of the Tax Lien Certificate
The Interest Rate is the default rate that the county charges delinquent tax payers, which is passed on to the investor. This rate is sometimes bid down at the tax sale, which brings us to the Bidding Procedure. Each state has a different bidding process. In some states the interest rate is bid down and it’s the investor who is willing to accept the lowest interest that wins the bid. In other states premium is bid for the lien. In this case the price of the lien is bid up, which has the same effect as bidding down the interest rate in that it lowers the effective interest that the investors receives on the total money invested. There is also a third method used by a couple of states that sell tax liens online and that is bidding down the percent ownership of the property should the lien fail to redeem and the lien holder foreclose on the property.
The Redemption Period is the period of time that the delinquent tax payer has to redeem the lien before the lien holder gets to foreclose on the property. States vary greatly in the redemption period, it can be anywhere from 6 months to 3 years depending on the state. And there are some special tax sales in one state where the redemption period is reduced to only 4 months.
The not so good news is that only a few states have tax lien sales online. And even in those states, not all counties have online tax sales. I’ve done all the research and found all the counties that have online tax sales and I’ve listed them in my “Guide to Buying Tax Liens Online” inside a home study course. The Buying Tax Liens Online home study course gives you a summary of how these tax sales work in each of these states.
The Tax Lien Expiration Period is something that you don’t hear about, but it is very important, as all liens have an expiration. A lien will expire worthless if the expiration period goes by unnoticed by the lien holder. Expiration periods vary greatly by state, and can be as little as short as one year after the redemption period to as long as 20 years after the sale of the lien. The states that have the shortest redemption periods also have short expiration periods. This is to encourage the investor to apply for the deed or to foreclose on the property immediately after the redemption period is over, so that the property can be returned to someone who will pay the taxes.
The not so good news is that only a few states have tax lien sales online and even in those states, not all counties have online tax sales. I’ve done all the research and found all the counties that have online tax sales and I’ve listed them in my “Guide to Buying Tax Liens Online” inside a home study course. The Buying Tax Liens Online home study course gives you a summary of how these tax sales work in each of states that have online tax sales, and it’s constantly updated. And of course once you order you get free lifetime updates. Find out more or order now at www.BuyingTaxLiensOnline.com.
Follow Us!