As we have talked about be fore in our previous blogs, when a homeowner fails to pay local or county taxes, the taxing authority can place a tax lien on the property. In many states, once a lien is placed on the property, the taxing authority issues tax-lien certificate investment documents, which a third party can buy at auction, some of theses auctions are held on line, or at the local court house. In this way, taxing authorities have the opportunity to get the money it needs to fulfill its current budget commitments. Although investing in tax liens allows investors to reap significant returns, there are associated risks. The are what we have came across in our works, we are not attorneys and laws do change from region to region.
Return on Investment
Purchasing a tax-lien certificate gives the investor the rights to the tax-related debt associated with a property, plus interest. Often times the rate of return is higher than what you may find in a bank, on a CD for example, which is why it is appealing to many investors. The taxing authority assigns a fixed rate of interest to each certificate. The holder of the certificate collects interest on the tax debt until it is paid in full. In order to satisfy the tax debt, the taxpayer has to pay the outstanding debt plus interest. Often the bank, if they have a mortgage will step in and pay it, to protect their investment of the mortgage.
The taxing authority gives the taxpayer a certain amount of time to pay the tax-lien certificate. If the debt is not satisfied, the investor receives the deed on the property, often times free and clear. As a result, the investor can become the owner of a property at a fraction of the market value of the home, aka the price of their investment. How ever there are few things to look out for.
what can be a big risk of tax-lien investment is homeowner bankruptcy. This is why you should do your home work, although rare, it does happen. If you purchase a tax-lien certificate on a property where the homeowner has declared bankruptcy, your investment may be at risk. Once a homeowner is in bankruptcy, the IRS or other creditors may have other claims on the property, rendering your tax lien worthless. How ever there are things you can do to protect your self from this.
It maybe a wise idea for investors to be prudent and inspect the property before investing in a tax lien. Some investors purchase certificates without getting the property inspected, which can be risky, because the property could be worth far less than the investor thought, or even be worthless. A homeowner behind on taxes may not have properly maintained his property, and the home may require expensive repairs before it can be sold. Also, the property could be uninhabitable due to significant damage to the structure. So your initial investment in the tax lien may turn into more money than expected.
Although most the time you get the tile free and clear, there can be issues that arise at times. To avoid the risk of title problems on the property, it is important to have a title search performed against the property. There may be outstanding liens on the property that you have to satisfy before obtaining a clear title to the property. though rare, still a good idea to have a title search done. You can hire a local title company or a real estate attorney to assist you with the title search.
If you are interested in finding out more information, about us, or what has been discussed, Feel free to contact us via phone 765 419-WEST (9378) or use the form below or visit BMW Properties web site by clicking here.