The Tax Lien System

Transcript:

Welcome to our tax sale start series where we’ll take one specific topic and explain it to you in less than two minutes!

Today:
What is a tax lien?

So, there are a few different ways that a state can handle delinquent real estate taxes and today we’ll be talking about the tax lien process.

So a tax lien is simply an instrument that serves as a lien against a parcel of real estate, similar to that of a mortgage lien. But what’s important is the tax lien process.

As with all of the delinquent tax processes, it begins with the property owner failing to pay the taxes on time. In a tax lien state, the county will sell a priority lien against the property for the amount of the taxes due. So what happens is the investor will essentially pay the taxes to the county in exchange for the rights to that lien. Now that lien has a life cycle of sorts – it could be 2 or 3 years. During this time, known as the redemption window, the delinquent tax payer can come in and redeem the property. This occurs in 90-95% of all tax liens – when they do this, they pay the back due taxes and fees PLUS an interest rate to the investor. In some areas this could be as high as 18 or 20%. Not a bad return. Now, if the delinquent owner does not pay off the taxes during the redemption period, the tax lien investor has the ability to foreclose the tax lien which would then give them ownership of the property. Not too bad either, especially when we remember this is a priority lien so any mortgages or other liens would be extinguished in most cases. So you get an interst producing return

So there it is – the basics of a tax lien system.

I’ll see you next time on our tax sale starter series. Take care.