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Escaping The Affects Of Tax Liens On Real Estate Investors

Aug 17, 2007
The government has taken certain measures to force delinquent taxpayers to pay taxes that are due. The tax lien is one such method adopted in 18 states, where as the rest of the states use the tax deed system. In states where applicable, tax liens are sold to investors for taxes that are overdue, and the investor can collect interest from the homeowners for the amount invested in the tax liens. If the homeowner fails to pay the tax lien and the interest, the investor may foreclose on the house and obtain the property without any problems, since it is a first priority claim.

Advantages Of Investing In Tax Liens
This method of investing in real estate is gaining popularity as investors are guaranteed a favorable return on their investment or, in extreme cases, granted rights to a property. The earning potential is about 16% to 24% and is considered a low risk and a low maintenance investment. These interest rates are untouched by any changes in the Federal Reserve interest rates. Another reason why investors love this method is that the lien does not subject them to land owner liability. Tax liens are secure investments as they are but a fraction of the property value.

When property tax delinquents are given adequate time and sufficient warning to pay the arrears, and they fail to do so for more than a year and a half, the tax collectors will list their property tax liens and sell them in an auction. The property owner is informed of the intended sale of the tax lien and it is published in the local newspaper. Once the tax lien is sold, the homeowner is given a fixed time frame, called the redemption period, to repay the tax lien plus interest. Foreclosure on the home is inevitable if the amount due is not paid within the redemption period. The investor is granted full rights of ownership to the property and incase the money owed is repaid while foreclosure is initiated; the investor has the right to charge the cost of he foreclosure to the homeowner too. Thus they have a potential for huge profits. If foreclosure occurs the property is given free and clear of all other claims to the investor. Another advantage is that the investor need not worry about redemption as the county is in charge of that and usually they need have no contact with the delinquent taxpayer. If the redemption has been paid to the county, the county returns the principle amount plus the interest to the investor on producing the tax lien certificates. Should the same homeowner be delinquent again the investor has a priority claim on the tax lien.

Additional Help
There are firms that offer their services as well as products to help new entrepreneurs run a successful business. There is also software available to new businesses. Much of this software is made with small businesses in mind and comes at an afforda
About the Author
David Gass is President of Business Credit Services, Inc. His company publishes a free weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
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