Tax Lien Certificate

In most jurisdictions, when a property owner is not on time in paying real property taxes, the county or municipality will issue a tax lien on that person's property. Certain states allow the tax lien to become a first lien on the property, which is turned around and sold at auction as a tax lien certificate.

After placing a successful bid, buyers of a government-issued tax lien certificate will then get one of two things: A state-mandated yield from the lien, which the delinquent taxpayer must pay in order to release the lien; or title to the property if the delinquent taxpayer fails to pay up.

Individuals have been snapping up tax liens more and more because of the above two benefits. Fixed percentage rates, mandated by a government agency, or the title to property at a substantial discount are barely credible benefits rarely seen with other real estate transactions?

When you purchase a tax deed there is really only one way that you can make a profit on your investment and that is to rent or sell the property. But when you purchase a tax lien certificate, there are 3 ways that you can profit from your investment.

The first and best way that you make a profit on your tax lien certificate is by redemption of the lien. The property owner redeems the lien and you as the lien holder will be paid the certificate amount of your lien plus interest and penalties. Because in most states the rate of interest is an annual rate, the longer the lien is held the more money you will get when it is redeemed.

If the lien is not redeemed, once the redemption period is over, you may begin foreclosure proceedings on the property in order to be paid what you are owed on the lien. This process can be difficult or easy depending on what state your tax lien certificate is issued in. In some states you only need to petition the county court, or go through an application process, to get the deed to the property whereas in other states you will have to go through a foreclosure process with an attorney, and this may take a lot of time and money. If the property has to go through a foreclosure sale, then you may not receive the property, as it will go to the highest bidder at the foreclosure sale, but you will get paid on your lien.

In some states there is third way that you can profit from your tax lien investment without foreclosing or redemption, and that is assignment of your lien to another investor. Some states permit for the “assignment” or sale of a tax lien certificate from one investor to another. This is the way that you can realize profit on your lien without waiting to go through the foreclosure process. Of course you are giving up the opportunity of perhaps coming away with the property, but you are collecting your profit sooner rather than later.