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Tax Lien Investing

A Tax Lien Certificate is a first position lien on real estate due to delinquent property taxes. Once property taxes on a property are one year delinquent, the county government is going to offer a tax lien certificate on the property. Tax lien certificates pay fixed rates of returns of 8% to 36% interest per year depending on which county you’re investing in. The price of the tax lien certificate is the amount of one years back taxes and penalties, and therefore can range in price from under $100, to hundreds of thousands of dollars.

Tax Liens vs Tax Deeds

About half the states in the United States offer Tax Lien Certificates, and the other half offer Tax Deeds. Both systems offer very lucrative investment opportunities for the informed investor. Both are means of collecting delinquent property taxes, putting properties back on the tax roll, and generating revenue to the county for schools, police departments, roads, hospitals, fire departments, and libraries.

Due Diligence

Investing in tax lien certificates isn’t complicated. It’s a matter of understanding the rules and procedures for the markets you have an interest in, and then knowing how to complete thorough due-diligence in a timely manner. Once you understand the due- diligence process, you can successfully acquire tax lien certificates anywhere in the world.

Tax lien certificates (Certificates) are liens secured against property (real estate) for non-payment of municipal charges. These charges include real estate taxes and assessments owed to the municipality. Wages for school teachers, police officers, firefighters, bus drivers, municipal employees and other critical services are paid through the collection of property tax revenue. When a municipality is unable to collect these taxes, it jeopardizes the municipalities’ ability to provide these services to the taxpaying residents.

Unpaid ad valorem or property taxes become a lien on the property once they become delinquent. In Florida, for example, 2012 property taxes become due November 1, 2012 and are delinquent if not paid by April 1, 2013. The tax obligation is recorded in the records of the local government where the property is located, and until the taxes, penalties and interest are paid the tax lien remains. Local governments auction off their accounts receivables on monies owed by property owners in the form of real estate tax lien certificates. This allows the local government to obtain the money for the Certificate at the sale, rather than waiting for the taxes to be paid to receive the funds. As the holder of the Certificate, the investor steps into the shoes of the government and has the right to receive the government’s interest and the same rights over the property that the government would have. Typically, the value of a Certificate is approximately 2% of the tax assessor’s value of the underlying property. Depending on the jurisdiction, after 1-3 years, the owners of these Certificates are entitled to have the issuing government agency auction the underlying property in order to pay off the total monies owed under the Certificate. Tax lien certificates have a priority of repayment over and above almost any other non-government lien. Tax lien certificates are superior to mortgages, home equity lines, construction or other liens, and condo or homeowner association liens and claims.

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