What is a Tax Lien Certificate?
A tax lien certificate is nothing more than a lien on a property for not paying taxes. Essentially, each and every year owners of real estate have a tax lien (aka financial obligation to pay taxes) placed on their real estate. If the property taxes are paid on time the tax lien is removed. If they are not paid, in due time the county government will allow investors to pay on behalf of the real estate owner. The winning bidder at the public tax lien auction receives a tax lien certificate as proof of purchase. As the owner of the tax lien certificate the investor may expect one of two possible outcomes, 1) An annualized return of 16%, 18%, up to 50% per year on what they paid to obtain the tax lien certificate or 2) Through foreclosure, become the owner of the real estate free and clear of any junior liens (aka mortgages and mechanics liens).
Once you become the owner of the tax lien certificate all you must do is sit back and wait. When the property owner finally decides to pay his tax obligation he / she must pay a visit to the county tax collectors office where he/she will repay what you paid to acquire that tax lien certificate plus interest. At this point the government will contact you, ask you to return the tax lien certificate and upon receipt of the tax lien certificate the government will generate a check in the amount you paid to acquire the tax lien certificate plus interest.
For those of you who are investing in foreclosures, this is another great investment that compliments foreclosures. For those of you that know lien priority you know that property taxes get paid first above everything else, even mortgages. Therefore, tax lien certificates are a very safe investment. So, next time you come across a foreclosure and you run a title report and find unpaid property taxes, you may want to see if you can invest in the certificate. It may be worth your time. The best part about Tax Liens is that they are available in every county in the U.S. The most popular county is Maricopa, in Arizona.
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