The Pros and Cons of Tax Liens
Today I’m answering your question, “What does a tax lien mean?”
In most instances, taxes create a negative impression. Stay with me, and I’ll give you both sides of this argument. Before I do that, understand I’m a publisher and an author. I’m not an attorney, real estate agent, or certified public accountant.
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What Is a Tax Lien and How Can It Affect Your Assets?
What does a tax lien mean to a property owner? A state notice of tax lien certainly is a headache. If you’ve received a notice of state tax lien, it’s time to take action and get it resolved.
A state tax lien is a legal claim against your assets. The state can seize your assets, and maybe it’s because you missed your payment of state income taxes or for a number of other reasons you owe the state money.
The state could and will file the tax lien at the public records, and that will make a mess of your credit scores. Resolution should be as immediate as you can possibly make it. It should be your priority to clear and have this state tax lien discharged from your records.
If this is a government mistake, which could happen, get it resolved so it doesn’t ruin your credit.
Alternative Real Estate Investing With Tax Lien Certificates
Now, I’ll reveal what most people are here to learn, and that’s about real estate property taxes. This is a different ballgame, and I know you’ll find it interesting.
More than 30-years ago, I discovered this business that’s little known and very profitable. To give you further background, the business is a subset of the traditional real estate business, which most people think of as houses, vacant buildable lots, small apartment buildings, small commercial properties, and farms.
Today I will talk about this subset of traditional real estate, and it has to do with tax lien certificates, keeping in mind that this is all taking place at the local county level.
What Is a Tax Lien Certificate and How Much Is the Interest Rate?
Tax defaulted real estate are properties that are advertised as delinquent on local property taxes, and the local government has filed a tax lien against the property.
What does a tax lien mean to an investor? The tax lien is actually for sale, and anybody can purchase the tax lien and pay someone else’s taxes. However, they will only do that if they can make generous profits.
For example, approximately half the counties in the United States will auction tax lien certificates. These certificates pay interest rates of 16% in some instances. Others pay 18%, 20%, and even 36% depending on the county which is auctioning the tax delinquent property.
A Tax Lien Certificate Is a Tax Defaulted Property
The owner who has defaulted on property taxes in a tax lien certificate county remains on the property, and the mortgage and deed of trust remain in place.
Tax lien certificates are defaulted properties. The certificates are sold at auction, and the auction is mandated and administered by the local county. The rules for each auction are unique and different in each state.
Millions of tax lien certificates for real estate are issued annually.
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Tax Lien Certificates vs Federal or State Tax Liens
Federal and state government liens are serious business and should be attended to immediately. Tax lien certificates on real estate are different.
What does a tax lien mean to your credit record? Real estate, tax liens and tax-defaulted real estate auctions are a local county issue and rarely if ever is the homeowner’s credit record damaged. The tax lien certificate applies to local county real estate.
The difference is federal and state tax liens attach to all physical assets plus securities, bank accounts, vehicles, business property, and account receivables.
Obviously, a tax lien certificate is uniquely different from a federal or state tax lien.
I’m not an attorney, and I’m not giving you legal advice. A quick review on a tax lien certificate on real estate is relatively easy to do at the local county records.
The Consequences of Unpaid Property Taxes
What does a tax lien mean to the government? The legislature in all 50 states have enacted laws that require property owners to pay property taxes. These laws apply to local counties and municipalities.
In the event the property owner fails to pay property taxes, the county treasurer is authorized to put a lien on the property and to ultimately collect property taxes.
If unable to collect property taxes, the treasurer is mandated by law to confiscate the property and resell it at a public auction.
What Happens at a Tax Defaulted Property Auction?
The auction bidding begins at very close to the back taxes and could be as low as 10 cents on the dollar of the tax assessed value of the property.
It’s important to understand the local county does not want delinquent properties, therefore they will discount the selling price and start the bidding, in most instances, below the tax assessed value.
It’s not unusual to see discounts of 60%, 70%, and 80% below the tax assessed value. This motivates many buyers.
Tax Lien Investing Offers You a Competitive Advantage
What does a tax lien mean? For a savvy investor, it means an opportunity.
Auction buyers have a competitive advantage when it comes to selling. It’s not unusual for my newcomer student investors to purchase real estate for pennies on the dollar with no mortgage or deed of trust loan on the property.
If you could buy a mortgage-free property at 10 cents on the dollar and then resell it for 60 cents on the dollar, how much do you think you could profit from buying at a tax-defaulted auction?
The money is made in this business at the time you purchase at the auction. Investors collect their money when they sell into the retail market. You make your money when you buy and collect it when you sell. The profits can be outrageous.
We hope you enjoyed Ted’s lesson, “What Does a Tax Lien Mean?”
For an informed investor, a tax lien is an opportunity to earn interest rates of up to 36% or even acquire a mortgage-free property for pennies on the dollar of the tax assessed value just for paying a property owner’s back taxes.
If you’d like to know more about tax delinquent real estate investing, Ted Thomas provides full support and complete training with home study courses, Q&A webinars, live tutorials, workshops, web classes, and personal coaching with certified coaches.
You can learn how to reap the huge rewards from tax lien and tax defaulted property investing! Get started today by taking advantage of Ted’s Free Master Class! Act now, it costs you nothing and will give you a big head start!
Ted Thomas is America’s Leading Authority on Tax Lien Certificates and Tax Deed Auctions, as well as a publisher and author of more than 30 books. His guidebooks on Real Estate have sold in four corners of the world. He has been teaching people just like you for over 30 years how to buy houses in good neighborhoods for pennies on the dollar. He teaches how to create wealth with minimum risk and easy-to-learn methods.