| Understanding Tax Lien Investment | | | | owners don't pay the lien, action is taken. In some |
| What is a tax lien? Tax liens occur when a | | | | states, the owner of the tax lien certificate needs |
| property owner has not paid local taxes on a | | | | to apply for, and then gets, the property deed. In |
| property. The local government will issue a lien | | | | others, there is an auction for the property. You |
| against the property that states that it can't be | | | | bid on the unpaid lien plus the interest due to you |
| sold and ownership cannot be transferred until the | | | | as the certificate owner. |
| owed amount has been paid in full. How do you | | | | States with Tax Lien Certificates: Alabama 12% |
| make money on someone else's tax lien? It's | | | | Montana 10% Arizona 16% Nebraska 14% |
| called a tax lien sale. An auction is held by the | | | | Colorado 9% above Fed Res Rate New York |
| public authority who sells the property in order to | | | | 14% Connecticut 18% New Hampshire 18% |
| settle the tax lien. The winning bidder is purchasing | | | | District of Columbia varies New Jersey 18% |
| the right to own the property if the original | | | | Florida 18% North Carolina 12% Illinois 18% North |
| property owner doesn't repay the tax debt to | | | | Dakota 12% Indiana 10-25% Puerto Rico varies |
| the winning bidder. | | | | Iowa 24% Rhode Island 12% Kentucky 12% |
| There are 3 kinds of liens that may be placed on | | | | South Carolina 8% Louisiana 5% and up South |
| property: | | | | Dakota 12% Maryland 12-24% Tennessee 10% |
| 1. Judicial liens (also called "judgments"): Come | | | | Massachusetts 18% Vermont 12% Michigan |
| from lawsuits by a creditor. | | | | 15-50% West Virginia 12% Mississippi 17% |
| 2. Statutory liens: Typically tax liens, either from | | | | Wyoming 18% Missouri 10%. |
| the IRS, state taxes, and property tax. | | | | To illustrate two successful lien certificate |
| 3. Consensual lien: Missed mortgage payments. | | | | investments, review the following scenarios: |
| What is the Tax Lien Process? | | | | Example 1: A real estate investor purchased a tax |
| First, the home owner does not pay their local | | | | lien certificate on a commercial property for |
| property taxes. So the local government makes a | | | | $12,000. The property owners were unknown, |
| lien against the property, which prohibits the sale | | | | and all of the required notices were sent out but |
| or transfer of the property until the tax debt is | | | | there was no redemption. The certificate holder |
| paid in full. After that the local government offers | | | | acquired the property which was appraised at |
| a tax lien at auction to cover the unpaid taxes. | | | | over $365,000. The return on investment for this |
| You attend the auction and bid. Be sure to | | | | real estate investor was over 30 times his initial |
| research before bidding; thoroughly inspect the | | | | investment! |
| property and do a lien and title search. The lowest | | | | Example 2: Mississippi pays lien certificate holders |
| interest bid or most favorable fixed interest goes | | | | 17% interest. After 20 years, a $2,000 certificate |
| to the highest bidder. | | | | would have grown to more than $30,000 with |
| Next, you'll have to wait and see. If the property | | | | earnings that are tax deferred. |
