There is no arcane secret to wealth in the realms of tax lien and tax deed property. You just need to understand the definitions and processes of trading. Although the similarities are obvious, there is a difference between tax lien properties and tax lien properties. The system used depends on the state in question. Presumably, you are very familiar with the meaning of the word “tax”. What, then, differentiates a fact from a link? Read on for answers.
A lien is an item owned by one party that another party claims as security or to pay loans or even another claim. In association with the word tax, a lien becomes a lien on an item taken for non-payment of taxes, in the case we are interested in, a house. The government requires each of us to pay property taxes and if an owner defaults on this, the government repossesses the home and forecloses on it. This is where the savvy investor finds himself in for a very good profit.
In some states, when a property owner does not pay taxes, the government places a lien on the house or lot. This is where the investor – you – places a first lien on the property. You pay the taxes owed. The owner has a fixed period of time to pay these taxes. When they do, the government sends you a check repaying your investment plus any interest or penalties accrued during the redemption period. So even if you don’t make a big profit, you don’t lose your investment. Few investment opportunities can boast such low risks.
What happens if the owner cannot redeem the property?
If the property owner doesn’t pay and you have a first position tax lien on the house, you are now given the legal authority to foreclose on the mortgage before the bank seizes it. You get the entire property simply for the increased cost of back taxes, which is minuscule compared to the market price of the home. It makes you wonder why anyone would go through the bank in the first place.
Of course, this doesn’t happen all the time: most homeowners who have liens on their homes are able to repay the government on time. But it’s entirely possible to own real estate for as little as a few thousand dollars as a tax-lien investor, and in the current economic state, the likelihood of incredible profits is growing. Now is the time to get ahead of the game – with a low-risk investment like this, you can create a lifestyle for yourself and your family that you may never have thought you could beforehand.
The tax deed
Now for the basics on tax deeds. As with liens, the government places a tax deed on a property when the owner fails to pay the taxes he owes. When he wins a bid on a property, he wins the tax deed, which establishes that he now owns the house. Once he pays the county, he acquires full legal ownership of the property. With the exception of a few states, you are free and clean once you win the bid and the government wipes out any prior tax liens or financial issues related to the property. Be sure to find out if this is the case in the state where you plan to bid, as the rules vary when it comes to waiving liens. For example, New Mexico and Arizona do not declare bonds void after a deed is purchased, which could leave the winning bidder with a mess on their hands.
Tax deeds are a great investment: you can make an offer for a mere pittance compared to the actual market value of the house or lot. There are a plethora of options available in today’s market, so don’t jump at the first “deal” that comes your way. Strive to develop your knowledge of the market and learn to recognize a home with potential.
By now, your head must be spinning with the possibilities that lie ahead. Whether you lean toward tax liens, tax deeds, or both, keep reading and keep learning.