The Advantages Of Investing In IRS Tax Liens

Investing in IRS tax liens is usually a low risk - high security situation. The investor is basically paying off the tax debt of an errant tax payer in return for the ownership of the tax lien. As proof, a document called a tax lien certificate is issued. Holding tax lien certificates can be advantageous not only as they can earn high rates of interest for the holder, but also since they carry with them very few burdens.

The investor gains in several ways. The major advantages are:

· The investor can collect interest on the certificate. If the property owner manages to redeem the IRS tax lien, the investor gains as the payments are redirected to him. Even if this does not happen, the investor can foreclose on the certificate and hold complete ownership rights. This is very profitable, since what had been paid to him earlier was on the basis of property taxes which form a small percentage of the market value.

· Possession of an IRS tax lien implies that the investor's dues will get paid first if the property is foreclosed. The rights conveyed by ownership are passed on to the investor and are not affected, since a private party and not the IRS is involved. Further, the investor does not inherit the other legal obligations that the property may carry.

· The investment is quite passive in nature. Most states do not give the owner of a tax lien certificate possession of the property. Thus the investor does not take on the responsibilities of a landlord and merely gets the first priority when dues are being paid off.

· The IRS tax lien will continue to be enforced by the IRS even when it has been sold to a private investor. The investor thus does not have to ensure that the delinquent tax payer makes up the back taxes. In several states even the foreclosure may be handled by the government.

· There is practically no contact between the investor and the errant tax payer. Quite often the IRS will continue to collect the redemption money, interest and other dues which are owed by the tax payer. The investor will then be informed accordingly and he or she can collect what is due through a routine procedure.

· The IRS lien certificates bought at an auction relate to a year's unpaid taxes. The investor can buy the following year's liens too, if the tax payer continues to default. In such cases, the lien can be bought privately without the competition of a public tax sale or auction. As the investor already knows about the background of this particular IRS tax lien, precious time spent on research is also saved.

Therefore, we can see that there are numerous benefits from investing in IRS Tax Liens.

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