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Tax Lien Certificates are Given to Successful Bidders at Tax Auctions

Written by: Sue Thornton

What are tax lien certificates?
When property taxes are late the government can put a tax lien on your home. Usually this becomes the first lien on the property. After placing the lien on the property the government can sell this lien at public auction. The person (or business) that purchases the tax lien certificate then becomes owner of the lien. The legal rights held by the lien holder belong to that person.

General Tips for Buying Tax Liens
Tax liens are usually sold once a year. To find out when they are sold in your area check your county and state websites. You'll need to preregister for the tax lien auction. You should look into and understand the laws governing tax lien redemption in your area. Tax liens are sold at or above face value. If the homeowner does not pay off the tax lien you will own the home; but this rarely happens.

Tax Lien Procedure
While tax deed sales are generally the same all around the country, tax lien procedures vary from state-to-state and even from one county to the next. In some states you bid down interest rates, while in other states you are bidding on the lien amount. In some states you receive interest on your premiums, in other states you do not. In some states interest is not paid on the premium amount and the premium is not returned to the investors if the lien is redeemed. Some states you bid on the percentage of ownership of interest in the property should the property go into foreclosure. In these cases the tax lien certificate goes to the person who is willing to accept the lowest percent of ownership interest in the property. Some states choose winners by random selection, awarding the tax lien certificates randomly by selecting bidder numbers for each of the parcels that are up for auction. There are even states, such as Kentucky, that the sale is done completely through the mail, e-mail, via fax or in person rather than being put on auction.

Are Tax Liens Safe?
As far as investments go, investing in tax lien certificates are usually safe but you should be cautious. With tax liens your investment appears to be fairly secure, you are either paid for the lien or foreclose on the home. It is still possible to lose money on this type of an investment. Be careful not to pay too much for a tax lien, this is the easiest way to lose money with this type of investment. The homeowner only owes the original lien amount plus interest, not the amount you pay for the lien. With all of the differences from one area to another it is important that you understand the laws in the area that you are bidding in. Tax liens aren't an investment you can cash in when you want to, you must wait for the debtor to pay the lien. Each governing entity has their own rules about how long the homeowner has to pay off the debt, some as little as six months others can be as long as four years. If you are looking for an investment with quick returns tax liens aren't for you.

 

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