Investing in Tax Lien Certificates

Tax Lien House

A tax lien is usually levied on a property especially when a homeowner comprises and fails to pay county or local taxes related to a property. The taxing body/authority in such a situation will move and put the given property on tax lien. Once the tax lien has been levied; the tax body will then issue a tax lien certificate which can be bought by an investor who can be selected by several methods. Random selection can be made from those who have submitted a bid and other methods which can be sued to pick on a potential investor does include premium method, bidding down on the interest and bidding down on the ownership (click here to read more on the selection methods). By doing this tax authorities are better placed into finding monetary requirements which they can use to cover up for the given budget needs.

No rush should be made into purchasing a tax lien certificate as the deal may not be lucrative as it may seem. This therefore calls for return rate on investment are clearly and deeply looked into. By purchasing a tax lien certificate an investor is given the rights to any tax related debts as well as the interest accrued. The tax authority handling the tax lien issue can also assign a fixed interest rate to each of the tax certificates. The tax certificate holder is required to be collecting the interests accrued on the tax debts until all of it gets to be paid in full. In order to fully comply with the tax debt; it is required that the person responsible for the payment of the given debt to be made liable for the outstanding debts accrued as well as the interest.

Ownership of Property Regarding Tax Liens is that one factor that is usually important when making an inquiry concerning tax lien certificates. The tax body usually allocates certain amount of time for the taxpayer to make some payments to cover for the tax lien certification. If the given debt in question has not been settled then in this case the investor is entitled to the property deed. If this happens then automatically the investor is made the owner of the given property by some fraction. This fraction amount is arrived at by taking into consideration the current market price for the given property.

What if the homeowner goes Bankrupt? If a tax lien certificate for a property has been purchased from a homeowner who has declared bankruptcy, in this case the investment risks are at the hands of the investor. Bankruptcy would mean creditors calling for claims concerning the property and if this happens then the tax lien certificate can be rendered to be somehow worthless.

Prior to embarking on plans to make purchase for tax lien certificates; an investor needs to be more prudent and do thorough inspection on the given property and thoroughly make a proper assessment concerning the value of the given property. Some investors would disregard this important aspect and the path is always a risky as the whole investment can get to crumble down and be worthless. A homeowner who is lagging behind on his/her taxes implies high chances that the given property may not have been well maintained. Such a home would need massive repair works before it can get to be sold at a favorable market value. On the other hand a property may have become uninhabitable due to lots of structural damages.

Any investment move made on any property needs to be a smart one and prior inspection of a property forms a legit way on maximizing an investor’s returns. Issues regarding property title needs to be dealt with properly and to ensure that this is what remains the case; a proper search for a title should be done against the given property. This is so as there may be some outstanding liens which need to get cleared before making a move to obtain a clean title to the given property. To ensure that the title search goes on smoothly services of local title firms or estate attorney can be hired. If a property purchase is made and it happens that some mortgage was owed then the proceedings will take some little different twist. Tax liens are considered superior to all other forms of liens and any foreclosure of any tax lien does eliminate all others with mortgage being included in this category.

Making a move for this line of investment at times do have its own shortfalls if the massive return rates are put aside. For instance some state jurisdictions would require the investors to make some really huge deposits regardless of the tax lien certificate amount that is to be purchased. A suitable example is in Florida where a deposit of $5000 will be required even if an investor will be in need of purchasing a certificate worth only $150. That can be quite discouraging, isn’t it?

After confirmation of purchase payments are usually needed after short time periods and failure to pay the required amount in full will often result to cancellation of the given purchase. These are some of the pitfalls that can be expected for those who some interest on this kind of investment. Have in mind that we have on mentioned just two of the many problems that you can potentially be hit with. To get a clear grasp of all the possible problems that can be experienced you can make some reference to this https://en.wikipedia.org/wiki/Tax_sale.

Recent years has seen many people making huge investments on tax liens. Well, the logic behind this is pretty clear that the expected profits are usually massive if not astronomical in number. The return rate for most states will average between 18%-24% on annual basis for most states and this number if well exploited can mean massive cash for the investors. There are many such business opportunities boasting of such a high investment return rate though some precautionary measures must still be taken before making a business move. All the potential benefits as well as the risks needs to be unmasked so as to get a clear outline of what this real estate piece does hold for most.

Readers Comments (1)

  1. Can you still get properties for cents on the dollar? I remember back in 2009 when people when investors where getting $400,000 properties for simply paying the back-taxes. Now there is too much competition in my opinion.

    Reply

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