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Tax Liens - Land for Pennies

18th May 2011
By Jack Bosch in Taxes
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Copyright (c) 2011 Jack Bosch

When it comes to property taxes, there is a key term you need to know; tax liens. A tax lien is one method by which states and counties collect the past due taxes on property.

States collect property taxes in order to pay for the upkeep on schools, public buildings and other infrastructure items such as road maintenance. The state or county want their money at tax time and may put delinquent taxes up for auction. This is called a tax lien auction.

A tax lien is put on a property when the owner fails to pay their taxes on that property on time. The property owner has a certain amount of time to make the payment with interest before the county or state puts the property up for a tax lien auction. In a tax lien auction, the state or county looks for an investor to pay the tax bill. This is called purchasing a tax lien certificate which gives the investor certain rights.

The investor has a right only to the taxes on the property and the interest those taxes accrue, not the property itself. That is unless the taxes continue to be delinquent. They can collect a high interest rate from the property owner if the owner wants to buy back the tax lien certificate. In some states this can be as high as eighteen percent while in others it may be as low as eight percent. If the property owner does not pay the tax certificate after a certain time limit, usually two or more years, the holder of the certificate may foreclose on the property. The property taxes must be declared unredeemable before a foreclosure can take place.

If a bank holds a loan on the property, the holder of the certificates rights outweighs the bank loan and the loan will be wiped out upon foreclosure. The only entity which has more claims to the property in question than a tax certificate lien is the IRS. The certificate holder also has no liability responsibilities to the property. Should a fire occur or the property is flooded, the tax certificate holder is not responsible for the repairs.

A tax lien can be put against a property when the owners do not pay their taxes on time. The tax lien certificate can be bought by an investor who then has the right to collect interest on the taxes. The tax lien certificate gives the investor rights over all other claims with the exception of the IRS.


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