What Is a Lien Certificate?
Today I’m answering your question, “What is a lien certificate?” which is a tax lien certificate.
I’m Ted Thomas, and for the past 30 years, I’ve been involved with investing and guiding people as a coach and a teacher about how to make money with tax lien certificates and tax defaulted property.
Want to learn how to make big profits in bargain real estate? Would you like to buy mortgage-free homes for pennies on the dollar? Or earn double-digit interest rates secured by real estate? Then you don’t want to miss this FREE Mini Course.
What Is a Lien Certificate?
About Tax Liens
Commonly, tax liens are a levy, an encumbrance that is placed on real estate. It’s possible for tax liens to be attached to homes, farms, ranches, forest land and even new office buildings.
A tax lien is created when the property owner fails to pay the local county or municipality the property tax which is assessed by said county or municipality. All property owners are required by law to pay their share of the local government’s bills.
The tax assessed value will determine the tax for the property. For example, a home in the country club probably has more value and will pay more tax than the average home outside the country club.
What Is a Lien Certificate?
Unpaid Property Taxes
Unfortunately, life happens and numerous property owners do not pay their property tax. However, the county needs money. The county must collect those taxes.
Property owners that have failed to pay taxes will be issued notices of default that explain the consequences which in some states are severe and final.
In other states, they issue tax lien certificates which allow the property owner some leniency to be late.
What Is a Lien Certificate?
Property Taxes
All of the rules regarding properties come from the state legislature, the ruling body. The legislature allows the county to be independent, however, the county must have processes in place to pay their own bills.
What bills does the county have? The county must pay the police, the firefighters, build schools and pay school teachers, build roads and maintain them.
The money to pay the county’s bills comes from property taxes. If the property owner fails to pay the bill which was assessed by the county assessor, the treasurer will take action.
What Is a Lien Certificate?
Tax Lien Certificates
What is a tax lien certificate? In approximately half of the states, the county produces and sells tax lien certificates at auction. These certificates are attached to the actual property.
What is a tax certificate on a property? The certificate become a lien against the property, and the property cannot be sold, traded, or mortgaged until the government tax lien is cleared.
In the United States, over 5,000 tax auctions are scheduled annually. This is a big business of collection that is administered, mandated and controlled with the efforts of the local counties under state jurisdiction.
What Is a Lien Certificate?
Tax Lien States
The laws are benevolent in the tax lien states and the laws are severe, demanding and final in the tax deed states.
For example, tax lien states do not immediately evict the property owner from the property. The property owner retains possession in a tax lien state.
The tax lien state county allows time for the property owner to recover from sickness, job loss or other life crisis.
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What Is a Lien Certificate?
Tax Lien Certificate Auctions
Tax liens are sold at public auctions. Different rules apply in each county and in each state. The auctions are announced in the local newspaper and on the county website.
The starting bid at auctions is very close, slightly above the delinquent property taxes. In many instances, this number could be less than 10% of the tax assessed value.
The defaulting property owner will pay an outrageous interest rate because they are late, and the late payment fees are determined by state law.
What Is a Lien Certificate?
Tax Lien Certificates Interest Rates by State
The rate could be 16%, 18%, 24% or 36%, and the tax lien certificate will clearly state the amount of interest on the certificate.
This is not a new concept or system. It was developed over 200-years ago. The county wants the tax revenue, not the property.
To encourage investors to purchase tax lien certificates, the county pays all of the late fees, 16%, 18%, 24% and up to 36% to the investor of the certificate.
What Is a Lien Certificate?
A Tax Lien Certificate Is an Encumbrance
What is a tax lien certificate? It’s a piece of paper that represents a lien, an encumbrance, a levy, a debt against the property, a formal attachment to the property showing money is owed to the local government.
The government charges very high fees, call them late fees.
When the property owner is late with property tax payments, then the late fee becomes income to the tax lien certificate purchaser. This income is a reward for purchasing the certificate and giving money to the local government to pay employees, police, firefighters and school teachers.
What Is a Lien Certificate?
Tax Lien Certificates Are Secured by Real Estate
Everyone wins with tax lien certificates. The county enjoys much needed money. The property owner retains possession of their home, and the investor makes an outrageous return on their money.
If the investor is not ultimately paid, in other words, the property owner fails to pay property taxes to redeem the certificate, then the local government will award the property to the tax lien certificate holder after a legal process.
To be clear, the property owner was protected and allowed to maintain possession of the property. However, if the property owner does not redeem the certificate, then by law, they forfeit the property to the tax lien certificate purchaser.
In that case, the tax lien certificate purchaser receives the property with no mortgage.
What Is a Lien Certificate?
Conclusion
We hope you enjoyed Ted’s lesson, “What Is a Lien Certificate?”
Tax lien certificates are a low-risk passive investment that pay high returns of 16%, 18%, 24%, or even as much as 36%, making them an excellent hedge against inflation.
Tax certificates are also secured by real estate. If you don’t get paid, then you get the property mortgage-free.
If you’d like to know more about tax delinquent property 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!
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