How to make money on tax lien sales

A tax lien is often filed by a local government against a property owner who has failed to pay property taxes. The government agency involved will issue a public certificate stating the amount of unpaid taxes and verifying that a lien has been placed on the property.

Often the agency will elect to sell such a certificate to a private investor in order to get some of the money due them without having to pursue the property owner. If the property owner later pays the tax with interest , the payment goes to the investor. As with any investment, there are risks in buying lien certificates. If you're considering this type of investment, keep the following information in mind. This version of How to Buy a Tax Lien Certificate was reviewed by Michael R.

Lewis on April 24, Community Dashboard Random Article About Us Categories Recent Changes. Write an Article Request a New Article Answer a Request More Ideas A tax lien represents an unpaid tax debt on a property. If a property owner does not pay their taxes within a certain time period it varies by jurisdiction , tax collectors will put the unpaid taxes up for auction.

It is through this auction process that you have the opportunity to purchase a tax lien. In the auction the highest bidder wins. The bidder then pays cash to the government in exchange for the lien, thereby transferring the risks and rewards of the lien from the government to the bidder. Learn how you make money on a tax lien. There are two ways to get a return on investment from a tax lien. The first is through interest payments. The second is through potential ownership of the property.

When you purchase a lien the property owner is required to pay back the entire value of the lien plus interest. Interest rates can vary widely from one location to another. All of the interest goes to the lien holder.

The lien will be structured to give the property owner a period of time in which to pay the taxes, usually between six months and three years. In the event the property owner cannot pay off the lien with interest in that period, you have the right to foreclose on the property -- or take ownership of it. This is a complex and time-consuming process and should involve the assistance of a lawyer. Decide on an area to look for liens. Tax liens are issued by county, so you'll have to focus your efforts on specific counties if you want to make such an investment.

Counties that are financially strained may be more willing to offer good deals on tax liens. They're looking for money right away instead of having to wait for property owners to pay their taxes. Investigate the financial status of various counties to get an idea of where you might get the best deals on lien certificates.

Government financial statistics are a matter of public record. You should be able to find information on county finances on the Internet. Try doing an Internet search for the records of a county you're interested in. Investigate the laws of the county or counties you'll be operating in. Real estate laws vary between jurisdictions, so you'll want to familiarize yourself with the laws where you plan to invest. Most of what you'll need to know will be on a county's website, so start there.

If you have further questions, call the county executive office and get specific answers. If they don't follow proper procedures, you could wind up with a lien that was illegally placed, in which case you could lose your investment. Keep this in mind as you investigate specific properties, and make sure a lien is legitimate. Are there specific times of day you're allowed to call?

How many phone calls or letters constitute harassment? Make sure all of your collection efforts are legal. Learn the foreclosure process in your area. If a homeowner fails to satisfy the lien within the prescribed time period, you can start foreclosure proceedings to obtain the property.

If you're having trouble navigating county laws, you might want to speak with a real estate attorney with experience in these matters. He or she can fill you in on all you need to know about local laws. Find out how the county conducts its lien-certificate sales.

Usually either the county treasury or tax office oversees these sales, so start by contacting them to find out what you need to know. Oftentimes lien sales are held by public auction. Sometimes they are handled online. Find out exactly how a county conducts lien sales in order to keep up with other investors. Find out the format of the auction. Sometimes they'll ask for bids on the lien. In other cases you may bid down on the interest rate for the lien.

Find out which format your county uses so you can devise a strategy for the auction. Remember that the homeowner's liability is not affected by how much you pay for the lien. Even if you pay too much, the owner doesn't owe more than the original tax bill and interest.

Keep that in mind when planning your bids. Find out what your responsibilities will be once you buy a lien. Each jurisdiction has its own laws regulating lienholders, so investigate your locality.

You may be required to provide written notification to the property owner that you've made the purchase. Also know the local foreclosure laws, since you can threaten to foreclose on the property if the homeowner doesn't pay their debt.

Make sure you learn about any responsibilities you'll have in accordance with the law. Obtain a list of properties for sale. When you speak with the county treasury or tax office, ask about getting a list of the properties that will be auctioned at the next lien sale. They may have a complete list on hand, or they may refer you to a local periodical that will print the list.

Secrets to Foreclosure Auctions and Tax Deed Sales

Make sure you get a list before the auction date. That way you can research the properties for sale and plan out your investment more effectively. Ask if there are any unsold lien certificates from a previous sale. If there are certificates left over from the last sale, the county might offer them for sale early or at a discounted rate. If there are unsold liens, ask to see the list. Then inquire whether they will be offered for sale early.

If you do come across any unsold liens, investigate the properties carefully. It's possible that you discovered a gem that no one noticed at the last auction, but the lien could be a money pit, too. Find out everything you can about unsold liens to make sure you'll be making a good investment.

Narrow down your list. The list could have hundreds of liens for sale, and it's impossible to do a detailed investigation of that many. If there are a lot, cut the list down. If you plan on investing only a few hundred dollars, then you can easily cross off any liens that require more money than that. If you have several thousand dollars to invest and are looking for a big profit, don't bother with smaller liens.

You can focus on particular types of liens. Tax liens can be placed on residential or commercial properties, so focusing on one or the other could narrow down your list. Investigate the properties ahead of time. Remember that once you buy a lien certificate, you assume the risk if the occupants don't pay back their debt. When you've obtained the list of liens, make sure to research all the properties you may be interested in.

You want a good investment, so look out for any signs that a property may not give you a profit. In this case the lender might step in to pay the lien before you get a chance to buy it. Lenders might be willing to pay more than you would to protect their larger investment in the property and prevent foreclosure.

They also might try to legally stop you from foreclosing on the home if you do manage to buy the lien. Dilapidated properties in economically depressed neighborhoods are a very risky investment. Such liens might carry higher interest rates, but if the occupants are unable to pay their debt, the interest rate won't do you any good, and you'll wind up losing money. Sometimes occupants owe more in back taxes than the value of the home.

This means that if they abandon the property, you won't even be able to earn back your investment by selling the property.

Avoid such places, or at least invest with caution. Properties that have suffered environmental problems such as chemical contamination are a risk as well. The cost of the cleanup will probably outweigh the potential profit to be earned from back taxes.

Take, for example, old gas stations. These properties need a complete overhaul. Old gas tanks have to be dug up, and the ground has to be decontaminated. This is a dangerous investment that could easily end up losing you money. Come up with a final list.

Attorney's Secrets to Tax Lien Certificate Investing and Tax Lien Sales Auctions

After narrowing your list down and investigating some properties you're interested in, you should draw up a final list. This way you can be prepared to focus on specific liens on the day of the sale. The size of this list will depend on how much you're looking to invest. If this is your first time and you don't have much to invest, keeping the list short is probably a good idea. If you're a professional with a lot to invest, the list can get as large as you can afford. Attend the lien auction.

When you've done all of your research and have a final list in mind, it's time to bid on the liens you want. Go to the location of the lien sale. Work out beforehand exactly how much you're willing to spend on each property. Without an advance plan you could get carried away and bid too much on a lien that won't give you a good return on your investment. Remember to take other expenses into account besides the cost of the lien.

For example, if the homeowners fail to pay their taxes, you might have to start judicial foreclosure proceedings. This will lead to legal fees, which can get expensive. Keep this in mind when deciding how much to spend. The lien sale, whether online or in person, should feature a typical auction format. The lien for sale will be announced, an opening price will be set, and then bidding will start. Pay attention during the auction so you know when a lien you're interested in comes up.

Usually auctions require payment in cash or certified check.

Add up what you're willing to spend on your liens, and bring either enough cash or a few certified checks. Some auctions allow you to finance a purchase. If this is the case, you should get pre-approved to avoid administrative slowdowns. Notify the property owner if you're required to do so. Make sure you stay within the law during this whole process.

You may be required to provide written notification of your purchase to the property owner. There may be other legal requirements as well, so keep yourself informed of local law. Let them know that you've bought the lien on their property. The county is supposed to notify a property owner when a lien is offered for sale, so they should already be aware of this possibility. Let them know how much they owe in back taxes and when this amount must be paid.

Pay attention to the expiration date on the lien. When you buy a lien it usually comes with an expiration date.

government tax lien certificates and tax foreclosure sale properties

When this date passes, you no longer have a claim on the back taxes. If the property owners aren't paying their debts, notify them again about their outstanding debt. If you do nothing, you risk losing your investment.

Collect your money when the property holders pay their taxes. The property owners still have to pay their money to the county when you've purchased a lien. When they do so the county will contact you, and you can go pick up your money at the county office.

What happens if the owners do not pay the taxes and it expires? What is the next step after that to get my money back? You can apply to foreclose on the property. This usually requires the help of a real estate attorney. Not Helpful 4 Helpful Where can I find the best places to buy tax liens? The best place to look to buy tax liens is the state, county, Treasury department, and Assessor's office websites. Not Helpful 1 Helpful What happens when they do not pay within the redemption period?

You must notify the property owner that you have paid the tax lien on their property. When the period of time lapses, you then can foreclose on them. If there is a mortgage or bank note on the property ,they will have first shot at getting to purchase the tax lien. Not Helpful 2 Helpful How much does a Tax Liens certificate cost? Tax liens are sold on vacant land, residential property, commercial property and industrial property. Can a purchaser pledge tax lien certificates as collateral for a loan and if so, where would the bank file to perfect its lien?

A tax lien provides the right to collect penalties and the interest from the penalties. No lender would provide collateral credit for owning tax liens. Not Helpful 3 Helpful How do I purchase a tax lien outright without the auction? To purchase outright, look into Assignment Purchasing; that's the OTC sales.

In redemption states, buy liens whose redemption period is up. Not Helpful 3 Helpful 9. I bought a tax lien certificate during the downturn of the U. Will I get my money back if a buyer wants to buy that land?

How to Buy a Tax Lien Certificate: 15 Steps (with Pictures)

You'll get some money, since it's yours to sell. How much you get depends on the selling price. Not Helpful 4 Helpful 9. As a foreign citizen, what would be the first step in starting this business?

Open an LLC first, then hire a real estate lawyer. The LLC will facilitate your purchase of liens, and the lawyer will keep you up to date and informed on all rules and laws. He will also will deal with contracts and legal documents.

Not Helpful 0 Helpful 2. I bought a tax lien certificate in Louisiana and the redemption period is over. How do I get the property? Notify the previous owner you've paid their tax lien in writing and hire an attorney to proceed to foreclosure. If a mortgage lender is involved attorney will tell you or do a title search online or at the local county they will contact you, or you them, and typically buy you out to resolve the junior lien.

Legal fees and foreclosure proceedings of course come at a cost. Not Helpful 0 Helpful 1. How do you decide how much to bid on a tax lien at auction? Answer this question Flag as As an overseas investor interested in US tax lien online auctions, is there a list of counties that offer these to non US citizens?

How do I find a location near me to buy a tax lien certificate? Do I pay the taxes after I have bought the lien?

Already answered Not a question Bad question Other. If this question or a similar one is answered twice in this section, please click here to let us know. Tips Don't be shy. Speak to as many of the other auction bidders as you can to learn more about the liens being sold.

Warnings Your investment is not liquid.

Louisiana Tax Lien Certificates and Tax Deed Sales in Louisiana LA

Your money could be tied up for years. Many people buy tax liens and mortgage notes expecting to get a house if the tax is never paid. Rarely does the property go into foreclosure. Edit Related wikiHows WH. Buying Property Discuss Print Email Edit Send fan mail to authors. Thanks to all authors for creating a page that has been read , times.

Did this article help you? Cookies make wikiHow better. By continuing to use our site, you agree to our cookie policy. About this wikiHow Expert Review By: Reader Success Stories Share yours! Rahaman 6 days ago. BG Barry Goldberg Nov 20, Obviously, it's just a first step, but an enlightening one.

I also appreciate how simply it's written, without legal gobbledegook, as well as links to select sites, and that you're not trying to sell me anything. GS Gloria Smith May It was good, but left me not knowing how or where to start. With this article, I answered all my question. I am on my way now, thanks. CR Carmelo Roman, Jr. I am interested in this type of investment option.

Looking to retire and do this on the side. Thank you for the info. JB Jeff Bridegroom Jun 1. AC Angel Castillo Jun 8, Excellent job, I compliment you. DW Dorothy Wallace Jun 29, Step by step to the very end.

I am happy the warning was placed at the end. WE Wayne Effner May 4, CC Clenon Carter May EA Edwardo Alvarado May 4, Eliminated some of my concerns about this.

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