Bank REO Training

What is a tax lien? Most municipalities impose property tax as a way of raising funds to run cities, schools and public services.  The funds raised need to be enough to pay the expenses, but not all property owners pay their property tax on time every year.

When property owners fail to pay property taxes the organizations that depend on the money are left to pay expenses without having the needed funds to cover the expenses.

They try to collect the taxes by sending notices, but sometimes the property owners are unable or unwilling to pay.  If this occurs the organizations do not want to be left without so they turn to investors for help.

They create a tax lien (also referred to as a tax certificate) and sell it via auction to investors.  I will cover the auction process another time, but it is important to know that tax liens are usually sold for the amount owed in taxes.

You may be wondering why someone would buy a tax lien for full price.  The reason is because of the interest.  The amount of interest is usually between 7% and 15% but can be higher or lower.

Each state handles the interest differently. In some states the interest is accrued monthly (1% per month) while others offer the same interest whether the lien is paid off the next day or one year later.  You can see why investors love tax liens.

Imagine paying $1,700 for a tax lien and collecting $1925 a few short weeks later.  Then do that again and again all year long.

I will cover different aspects of tax sales in the coming weeks. If you would like to get started right away, visit our real estate training page and request your free report to get a valuable information you can use today.