Here’s the answer to a very good question about tax lien investing that I received recently from Jerry:
“I asked this question to another tax lien specialist and he couldn’t answer it. I was just wondering. If I buy a tax lien certificate and then it gets redeemed, how does the county make any money (for taxes owed and penalty) if I get the principal amount (which includes taxes & penalty – correct me if I’m wrong) plus interest?”
Answer:
The county wants to get their tax money as soon as possible. They want the tax money and whould rather that now than have to wait for some time in the future and collect the interest and penalties. So when the investor buys the lien, they get paid any back tax taxes and back penalties and interest – that is already added into the lien. Any future interest and penalties go to the investor. The county gets their money when the investor buys the lien. Then, when the lien is redeemed, the lien amount (which included the penalties and interest up to the time the lien is sold at the tax sale) goes to the investor along with any accrued interest and penalties since the lien was purchased.
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