Tax Lien Certificates As A Real Estate Investment


Home foreclosures are at an all time high. Nearly 3 million homes were under reacquisition by banks and lenders in 2009. We are on pace for another 3 million this year as well.

The loss to these homeowners does carry a potential advantage for the ambitious entrepreneur. Purchasing tax lien certificates or tax deeds can be a vehicle to fast-track you into a new home. They also can be used for buying and quick selling or for building a portfolio of investment properties with residual rental income.

A lien against real property can arise in one of two ways. Initially, any mortgage lender is going to hold right, title and interest to that property because they have a lien filed. The lien serves as a security interest and provides the home as collateral. Mortgage loans, refinance loans, equity credit lines and reverse mortgages all are generally secured with a lien.

Additionally, any creditor may file a lien against real property. In this case, the lien is a legal claim on the individual’s property for payment or satisfaction of a debt. Property may be encumbered by tax liens (federal and state), mechanics liens (filed by contractors for unpaid work done on the property), civil liens, and judicial liens placed by a court to collect payment on a claim.

In many of these cases, if the owner fails to make payment on the home, or does not satisfy the lien, the property may be foreclosed, or seized and sold at auction in order for the creditor to recoup the amount owed on the lien. The lien itself may also be sold.

This is where you come in.

These lenders and creditors are eager to regain their lost funds. They are not interested in profiting over and above the amount that is owed to them, nor are they able to do so under state and federal law. They care about satisfying the lien and extinguishing having to hold collateral. As a result, these properties may be available to you at a cost well under market value.

Forced-sale auctions are held by the IRS, the states and be specific counties. Because a lien filing is a public notice, you’ll want to research various online databases to see what properties have had liens filed, and also for the listings of public auctions.

Your county’s tax assessor or treasurer’s office can likely provide you with some useful information regarding upcoming auctions. Local newspapers generally list them as well. Even eBay lists tax lien sales.

Selling these debts to investors has advantages to all three parties involved. The debtor is extended additional time to attempt to bring themselves current, and the investor either purchases the lien under low-risk and a high rate of return, or can foreclose on and keep the property if the delinquent individual fails to pay off the lien. Either way, the creditor gets their money.

For the investor, the tax lien generally takes precedence over the mortgage lien in a foreclosure proceeding. This means that the mortgage is eliminated and the property title transfers outright to the new owner.

There are a few things that you will need to carefully research. In some cases, priority and secured creditors, like the IRS, will take right of way over the new tax lien holder if the original debtor lost the property in a bankruptcy. A careful title search on the lien will need to be done to ensure your new lien isn’t rendered worthless.

Additionally, an assessment of the property should be made. Buying property “as is” without a visual inspection may turn into you holding the lien to a parcel that has devalued or is in such disrepair that it is essentially valueless.

Done correctly, tax sale investing is thus an attractive opportunity to those who are qualified and who have sufficiently researched the pros and cons.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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