Federal Tax Lien

Buying Tax Lien Certificates: A New Age Investment Option

A good opportunity for investment is presented by real estate that has a tax lien attached to it. When a property owner accumulates a lot of unpaid property tax dues, the federal government has the option of placing a tax lien on the property title. It can then sell the lien to any interested buyer at an auction in the form of a tax lien certificate.

With proper preparation and planning, anyone who buys tax lien certificates usually stands to gain from the investment. On the one hand, the buyer benefits by getting the payments that the property owner has to make in order to release the lien.

On the other hand, if the tax lien is not redeemed in time, the buyer still profits from the sale of the property. If the property owner is unable to clear the tax debt and release the lien, the property may be foreclosed. The holder of a federal tax lien certificate on the property is normally given first preference over other creditors and any mortgage or mechanic debt will be considered only after the tax lien has been paid off. The holder of the lien can then buy the whole property without inheriting any of the debts and mortgages attached to it. Thus the capital which has been invested in the tax lien is secured by the value of the whole property.

However, when investing in tax lien certificates, it is imperative that proper background research be conducted before the actual purchase. Investigation into the title of the property and its bankruptcy status can save the investor from losing his capital instead of gaining from it. Inspection of the property and geographical surveys will ensure that the property is worth investing in.

It is due to these drawbacks that it has traditionally been banks, insurance companies and Wall Street firms who have been interested in purchasing tax lien certificates. These institutions have the resources to carry out proper investigations, and are therefore not only suited, but also more assured about their investments.

It is only in recent times that individuals too have been expressing an interest in buying liens. They are attracted by double benefit of earning a fixed percentage rate and getting the opportunity to acquire the property at a great discount. As these advantages are not usually found with other real estate transactions, more and more people are choosing this as an investment option.

Investing in tax liens has been so successful over the past few years, that a whole new industry has grown up around it. There are many who have made a career simply looking out for tax lien sales, which are real estate sales taking place due to tax delinquency.