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Property tax lien certificates can be a very profitable means of getting into real estate investment, so I thought I’d share some background information to explain what property tax liens are and why they offer such profitable returns. When a property owner is unable to pay their taxes for example, they can be issued with a tax lien certificate which simply provides a means to guarantee the creditor (in this case the tax collector) will receive the money they are owed.
The tax lien is secured on the personal property or real estate owned by the debtor - the most common form is the mortgage lien. There are several other types of tax liens but we’ll leave those for another line of discussion. Each variation of lien carries its own set of rules on how it is implemented, and each may also vary from state to state.
Of the property liens we are considering here, there are two types - namely the general lien and the particular lien. The particular lien comes into play when an investor claims the right of access to a property in return for services or money which they invested in the particular property. Most liens can also be divided into two main groups - namely legal and federal liens (which can be enforced in a court of law) and equity liens which are valid only in courts dealing with equity.
When you buy a tax liened property you need to be aware that you are not actually buying the property itself. What you are doing in effect is lending the property owner the money they need to pay back their tax arrears. The property owner is also agreeing to repay that loan, with an agreed amount of interest, within the already determined repayment period that was established when the tax lien certificate was sold.
In many cases the property owner is able to repay the tax lein certificate within the allotted time span, in which case the property deed ownership reverts back to them. In such an event, they save their property from being repossessed and maintain their credit rating.
In the event where the property owner is not able to repay the tax lien back to you, in full, ownership of the property is transferred to you as the purchaser of the tax lien certificate. The property is now yours for you to do with as you wish.
Tax lien investments are pretty much guaranteed to make money whatever the outcome. Where the property owner is able to repay the lien on time, your profit is the amount of interest that was due from the lien certificate. If the property owner is not able to repay the certificate, you become the new owner of the property with nothing more to pay other than your original investment in the tax lien certificate.
As with most investment opportunities, you need money to make money, but hopefully you can see that investing in tax lien property certificates is a fairly safe way to profit from and acquire real estate.