The exact definition of a tax lien is a charge against a property by operation of law. Tax liens and assessments take priority over all other types of liens.
In simple terms, if a property owner doesn’t pay their property taxes, a lien is levied by the county to collect the taxes, which they then sell to investors.
Basically, unpaid taxes become a lien filed with the county the property is located on until the taxes are paid. If the taxes aren’t paid for a predetermined amount of time, the owner will lose his or her property. While this is happening, a penalty is added to the lien ranging from 8% to 50% per year. THAT is where you’re looking for a guaranteed return on your investment.
Let me back up a minute – when there is a lien on a property, it basically means that no one can buy or get a loan on this property until the lien is satisfied (paid in full.) This is why government-issued tax liens are such a safe investment; because you are guaranteed to receive either your money or the property. The concept is that you are stepping in the government’s shoes for a while and paying them for a lien they placed on the property (because the property owner didn’t pay their property taxes) which entitles you to the state mandated interest rate on the amount you purchase the lien for (again, this rate is anywhere from 8% to 50%.)
The reason the government offers this tremendous opportunity boils down to that age-old, simple concept – money. Without money, the county government cannot exist. Think of just a few minor things that money will cover:
* Road repairs/street signs
* Police salaries
** School funding
Did you know that in some counties over 60% of their revenue comes from property taxes? I’m sure you can see why the government can be more than happy to place a lien on a property and sell it to you for the interest.
Think about it; they collect their money from you buying the tax lien—they’re happy. They are charging sometimes ten times the interest of a CD and guess what? They aren’t paying the interest; the homeowner is. The government will always get their tax dollars, while the smart investors are making fortunes buying these liens. Remember, you are not buying the lien itself; you are buying the tax lien certificate offered by the county.
The counties really don’t want these liens; they’d rather have the money! This way they’re not stuck holding the lien until the property owner finally pays—which sometimes never happens anyway.
To Learn More, please visit Investing In Tax Liens