Posted in Blog  
  on Apr 07, 2015

What is a Tax Lien Certificate

A tax lien certificate is a certificate of claim against a property. They are issued when there are unpaid taxes, usually property taxes, that are directly associated with the structures and land in question. These certificates are issued by most counties in the US and some individual municipalities also offer them. Instead of pursuing delinquent taxes, these certificates allow a governing body to collect needed tax revenues by selling the certificates to investors.

Tax Lien Certificates Are Sold In Many Different Ways

Most homeowners are going to pay their taxes, even when those taxes are overdue. The lien on the property gives the certificate holder rights to collect money when the home is sold. If there is a tax lien for $2,000, for example, and it remains unpaid until a property is sold, then the cash from that transaction would be deduced the outstanding amount plus interest that the lien certificate holds. The term of a tax lien certificate is generally 1-3 years. The tax rates are generally between 8-30%. If the property owner doesn't pay the bill and collection efforts have been made, then the certificate holder may also choose to foreclose upon the property to take possession of it.

What Is the Key To Making a Good Investment?

Tax lien certificates have higher returns, but they also have a higher risk. They often can't be sold to another investor. The issuer of the certificate may recall it at any time due to an internal error at current interest rates instead of the maximum allowable. This means making a good investment often requires a lot of research. The benefit of owning a tax lien certificate is that this debt is often given a first priority over other liens, like contractor liens. If the property sells, then you get the first chance to collect the cash that is owed. The value of the property must be worth the potential legal proceedings necessary to claim them. Worthless properties don't often have property taxes paid on them because they are of such a low value. By tracking which properties offer the best chances for success, a tax lien certificate can be a good investment. If you can afford the initial purchase of the tax lien, then this could be a good investment. Perform your due diligence, check for local certificates and their value, and then begin collecting a return that can often beat what stocks and bonds can provide.


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