When property owners fail to pay their property taxes, the government has the right to attach liens to those properties. Legally speaking, liens are security interests that encumber the property as a way to secure the payment of a charge, debt, or other fee. The payment will also include penalty fees for the delinquent payment of the original debts. Although this method's primary purpose is to collect money owed to the government, it can also represent a valuable investment opportunity for third parties. |
For those who do their research, tax lien investing can be quite profitable. The investment is made by making the winning bid on a property at an auction, either in person or online. The winning bidder will receive a certificate that sets forth his property interest. The bid will cover all of the unpaid taxes and the winning bidder will obtain the right to collect any penalty fees that accrue after a specified period of time if the property taxes have not been paid by the original owner. The winning bidder will not have any ownership interests in the property itself. If the original property owner is able to pay back what he owes, the county will repay the winning bidder the principal amount, plus any interest that has accrued. The rates of return on such liens can be much higher than other types of investments, making them an attractive opportunity to earn some extra money. This is because states are able to set much higher interest rates for unpaid taxes than they are other types of fees. The interest rate varies by state, but in many of the states that sell tax liens, the interest rate is over 15%.
Tax lien investing will yield dividends in one of two ways. First, the delinquent taxpayer may pay off his debts. This will give the government the money they need to fund public projects and will give the lienholder the penalty fees and other charges that are incident to the unpaid taxes. Because of the high interest rates discussed above, the penalty fees paid to the lienholder may be quite lucrative, depending on the value of the unpaid taxes associated with the property.
The second way that tax lien investing can be profitable is if the delinquent taxpayer is unable to pay off the back taxes. In this case, the lienholder can begin foreclosure proceedings to obtain the home itself. He will generally have first claim to the home, even over other creditors. For example, if the original property owner has taken out a mortgage on the home and has not yet paid off the mortgage, the bank that issued it will have to get in line behind the lienholder to try and obtain the property. Before a foreclosure sale can happen, the local government authority in charge of such sales must notify the property owner. After the foreclosure sale, the lienholder can often get absolute title to the property. Because the property is sold for only the amount of the delinquent taxes and any other fees, this represents an opportunity to obtain real estate for a fraction of its actual value.
If you are interested in tax lien investing you should do proper research with CivicSource. Learn more by visiting http://www.civicsource.com.
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