Friday, November 25, 2022

What Are Tax Lien Properties

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The Cons Of Tax Lien Investing

Tax Lien Investing Pros and Cons

Before you dive into tax lien investing, its important to understand the downsides. This type of investment has a large amount of risk. Its recommended that only professional or experienced investors take on this kind of investment.

  • Required research and preparation: Theres a lot of upfront work that goes into tax lien investing. To get started, you must be familiar with property in your area, and do substantial research into the specific property with a tax lien in it. You must also research any other potential liens that would impact your ability to claim the property.
  • Time-consuming responsibilities: In addition to the upfront work, theres also a lot to consider once you purchase a tax lien certificate. First, you must be aware of all deadlines, as well as initiate communication with the homeowner to get your money. And if the homeowner doesnt pay their tax bill, youre responsible for initiating the foreclosure, which requires time and expertise.
  • Expiration dates: Its important to know that tax lien certificates have an expiration date. If you dont receive your payment or foreclose on the home before a certain deadline, then you lose your right to do so.
  • Neglected properties: Its important to research the condition of a property before bidding on a tax lien certificate. If you end up having to foreclose on the home, you become the owner. The cost necessary to rehabilitate or sell the property could eat into your profits.

How To Find Texas Tax Lien Properties

The Texas Press Association publishes notices of all tax sales, so its basically just a matter of checking your local newspaper to find out whats available in any given month. Its not advisable that you just show up with cash in your pockets. Successful tax lien investing in Texas requires due diligence.

Liens are sold on properties in as is condition, and no guarantees are made that there are no other liens against them, so check the properties in question. Drive past them personally. A home might have existed there three weeks ago, but now its a pile of rubble because it burned to the ground in a fire. If so, youre buying a pile of ash and some land. Youll want to eyeball the propertys condition even if its still standing, although this wont necessarily safeguard against anything that might be intrinsically wrong inside.

Youll also want to do a title search for other liens against the property, such as mortgages. This might not be an optimum investment if other liens exist. As the new owner, you could find yourself responsible for paying them, and you may not be able to turn around and sell the property until you do.

Am I Buying The House Or The Tax Lien At Auction

At a tax lien auction you are buying the tax lien, not the property itself. However, if the owner fails to repay you by the required dateand you follow your counties guidelines for paperwork/deadlinesyou will be able to take possession of the home at that time.

For example, if I buy Joes tax lien for $2,000 and Joe pays me back before the deadline, he gets to keep the property. However, if Joe fails to pay me back, I will take possession of the home for that $2,000.

It is important to note that you wont have the option at the end of the year to say never mind, I dont want this property. You purchased the tax lien, and will be taking possession of the home. Make sure you do your homework before the auction, and dont bid on properties you have no desire to own!

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Are Tax Lien Auctions Profitable

Yes.

also, no.

Ultimately, the profitability will depend on how well you did your research, how much you paid for the lien, and whether the owner pays you back, or you take possession of the home.

It can be very profitable, as Marty talks about on this episode of The Military Millionaire Podcast, but this strategy also carries a large risk that you need to be able to withstand financially.

Subsequent Liens Taking Priority Over Previously Filed Federal Tax Liens

Tax Lien Properties For Sale

In certain cases, the lien of another creditor may take priority over a federal tax lien even if the NFTL was filed before the other creditor’s lien was perfected . Some examples include the liens of certain purchasers of securities, liens on certain motor vehicles, and the interest held by a retail purchaser of certain personal property.

Federal law also allows a stateif the state legislature so elects by statuteto enjoy a higher priority than the federal tax lien with respect to certain state tax liens on property where the related tax is based on the value of that property. For example, the lien based on the annual real estate property tax in Texas takes priority over the federal tax lien, even where an NFTL for the federal lien was recorded prior to the time the Texas tax lien arose, and even though no notice of the Texas tax lien is required to be filed or recorded at all.

Recommended Reading: How Much Tax Should I Be Paying Per Paycheck

How Does A Tax Deed Sale Work

Tax deed sales are public auctions, similar to a foreclosure auction that allows parties to bid on the property either in person or online. The county or city sets a minimum bid, which is typically the unpaid tax amount with any fees or interest to this point, and the property is sold to the highest bidder.

The city or county will deduct any taxes owed from the winning bid. If there are tax overages, a party with a vested interest in the property, such as a mortgage lender or possibly the property owner, can apply to receive the overages from the tax sale. Tax deed sales require that the property be purchased for cash and request that a small deposit be made upon completion of the sale with payment in full to be made as quickly as 24 hours after the sale up to a few weeks later, depending on the state.

Some states have a redemption period after a tax deed sale, where the homeowner or a lienholder with interest in the property has the right to pay the unpaid taxes plus fees and penalties, redeeming their interest in the property within a specified period of time.

Other states have no redemption period on the tax deed. Once the property is sold at a tax deed sale, the property is conveyed to the new buyer, wiping out most debts or encumbrances, including mortgages, and giving the buyer ownership to the property from the sale date forward.

What Happens To A Mortgage In A Tax Lien Sale

A lien stays with the property when it is sold. However, the lien remains on the previous owners credit report.

Property tax lien foreclosures occur when governments foreclose properties in their jurisdictions for the delinquent property taxes owed on them. Property tax liens are superior to other liens so their foreclosure eliminates other liens, including a mortgage lien. Homeowners with delinquent taxes typically also have outstanding mortgage debt. After purchasing a tax-foreclosed property, if you discover that there is a mortgage lien on it, it should be removed by the county in which you bought it. The county will discharge the lien based on the tax sale closing documents. In the event that this does not work, you can also contact the lien holder to have it removed.

In every state, after the sale of a tax lien, there is a redemption period where the owner of the property can try to redeem their property by paying their delinquent property taxes. However, even if the owner is paying their property taxes, if they fail to make their mortgage payments during this time, the mortgage holder can foreclose on the home.

Recommended Reading: How To File Federal Taxes For Free

A House Lien Search Using A Title Agency

You can hire a title company or title abstractor to find liens on property at any time even if a sale isnât pending. Say youâre interested in a distressed property, a title company can research the houseâs history before you put in an offer.

The benefit of working with a title company is their experience level. In essence, they know what information to look for and where to find it. A title agency also produces a title report, which includes an organized history of ownership, liens and property records. Youâll have to put this report together yourself if you choose to do the research on your own.

The main disadvantage of working with a title agency is the cost.Researching a property on your own is free while title companies can charge several hundred dollars. If youâre searching for liens just for curiositys sake, hiring a title company to do the job may not be worthwhile. But if you have a financial interest in the home youâre looking into, investing in a professional search could be well worth the cost.

How Property Tax Sales Work

How to Buy Tax Lien Properties | Tax lien Investing Strategies

Each state has different laws for tax sales. Generally, the taxing authority, usually the county, doesn’t have to go to court before holding a tax sale. Instead, the process is often started when the taxing authority files a list of delinquent taxes, which includes information about the taxpayer, the property, and the amount due, with the recorder’s office and publishes a copy in the newspaper. Also, the homeowner typically is entitled to some form of notice of the pending tax sale.

Then, in some places, the county holds a public auction. Commonly, bidding begins at the amount that covers the delinquent taxes, interest, and related penalties that are owed to the taxing authority. The winning bidder at the sale normally receives either a:

  • tax deed, or
  • tax lien certificate.

In some jurisdictions, though, a sale isn’t held. The taxing authority simply executes its lien by taking title to the home. In other places, the taxing authority must foreclose the property, usually by filing a lawsuit in court, before holding a tax sale.

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Understanding A Federal Tax Lien

  • Tax Exempt Bonds
  • A federal tax lien is the governments legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the governments interest in all your property, including real estate, personal property and financial assets. A federal tax lien exists after:

    The IRS:

    • Puts your balance due on the books
    • Sends you a bill that explains how much you owe and

    You:

    • Neglect or refuse to fully pay the debt in time.

    The IRS files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to your property. For more information, refer to Publication 594, The IRS Collection Process .

    Recommended Reading: How To Subtract Taxes From Paycheck

    Atlanta Ga Tax Liens And Foreclosure Homes

    As of October 19, Atlanta, GA currently has 1,445 tax liens available. Are you looking to buy a tax lien in Atlanta, GA? What happens when you buy a tax lien? Home buyers and Investors buy the liens in Atlanta, GA at a tax lien auction or online auction. These buyers bid for an interest rate on the taxes owed and the right to collect back that money plus an interest payment from the property owner. The relatively high interest rate makes tax liens an attractive investment.

    Page 1 – 501,445

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    Lien owners need to know what their responsibilities are after they receive their certificates. Typically, they must notify the property owner in writing of their purchase within a stated amount of time. They are also usually required to send a second letter of notification to them near the end of the redemption period if payment has not been made in full by that time.

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    The above article is intended to provide generalized financial information designed to educate a broad segment of the public it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

    Pros And Cons Of Purchasing At A Tax Lien Auction

    Purchasing a tax lien at a tax lien auction can be challenging. Some counties and states are very competitive, where the bidders bid the tax lien certificates as low as 0% to 2%, regardless of what the maximum interest rate on the tax lien is for the municipality.

    Tax lien auctions also require a fair amount of upfront due diligence, including verifying property value, condition, and other liens or assessments that could cloud the title. This can be a lot of work and time for an asset that you may not win.

    Additionally, there is always the risk the property owner does not pay the unpaid taxes within the redemption period. If it is a state that does conduct a tax deed sale and the tax lien certificate expires, the right to collect the unpaid taxes must be recouped through a formal foreclosure process, which can be lengthy or complicated, especially if there other liens encumbering the property.

    Also Check: How Much Federal Tax Should I Pay

    Canadian Revenue Agency Liens Properties

    Canadian Revenue Agency Liens Tax Lien can be described as a claim imposed by law against the private property of an individual owing tax to Canadian Revenue Agency . It is important to note that a tax lien can be implemented if a person owes taxes on personal property, real property, income or any other type of taxes.

    • Do you owe money to the Canadian Taxman Canadian Revenue Agency ?
    • The Canada Revenue Agency has significant powers under the Income Tax Act to collect personal income tax debt. This is a procedures most commonly used.Charge over Real Property Under Section 223 of the ITA, the Canadian Revenue Agency can register a lien over a debtors home . It does so through the following steps:
    • The Ministry of Revenue issues a certificate which certifies an amount owing by the tax debtor
    • This certificate is registered with the Federal Court and when so registered, it has the same effect as if the certificate were a judgment obtained against the debtor for the amount owing plus interest until the amount is paid
    • The certificate shall be deemed to be a judgment of the Court against the debtor for a debt due to Her Majesty in Right of Canada
    • Evidence of the certificate registered with the Court and a writ issued by the Court are filed with the land registry where the debtors property located. This creates a lien in favour of Her Majesty for the tax debt owed.
  • Do you own property in Canada and have Canadian Revenue Agency Lien?
  • We might be able to help, at no cost.

    Start Small And Local

    How To Buy Tax Lien Properties – USA vs Canadian Tax Deed Auctions

    If youre interested in tax-lien sales, do your legwork first. Start with your city or county. Find out when tax-lien sales are held, how theyre conducted and how you participate. All that information is public record.

    Stay local and take advantage of being a little guy, Spader says. Since you know local properties, you can better tell their value. Also, smaller towns dont have as many liens available, so youre less likely to be competing with big investors looking to buy portfolios of tax liens.

    You may even be able to go right to an individual government official and find liens that arent being offered in a public auction.

    Westover recommends the National Tax Lien Associations Tax Lien University, which is offered once a year, in October, as a good place to learn.

    If youre not sold on tax liens as an investment vehicle, they still serve as a harsh reminder to property owners.

    Pay your property taxes, Hughes says. The penalty is too great to not pay them.

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