What Are Tax Liens?
What Are Tax Liens?
Tax liens are liens that are put on real property by a municipality or county for failure to make the required tax payments. Taxes are imposed on properties and provide a major source of income for city and local governments. Failure to pay property taxes will result in heavy penalties on the homeowner and if the delinquency becomes too high than a tax lien and possible foreclosure will ensue.
Many states allow that when a property owner is behind in their taxes, a tax lien can be put on the property. These tax liens become precedent above other liens like mortgage and mechanics liens. Some states will allow the municipality to put the tax lien up for auction and sell the debt to the highest bidder. Sometimes the taxes owed on properties are a lot less than the house is worth, and the municipality will even sell the tax lien for less than what is owed. Purchase of the tax lien than becomes a tax lien certificate.
After the highest bidder purchases the tax lien certificate they are in position to do one of two things. First since they own the tax lien, the homeowner is required to make the tax payments to them, with interest. If the property owner fails to make these payments than real estate title is given to the holder of the tax certificate.
Tax liens are becoming increasingly attractive as real estate investors and entrepreneurs see these types of purchases carry lower risk with higher returns than ordinary foreclosures or real estate properties.