Tax Liens

June 12th, 2010
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Tax Liens

Investor Education Series written by Net Advisor

You may have heard advertisements (infomercials) about about tax lien investing.

Let’s take a quick look at tax liens. This read will take less time than watching an infomercial, save money from buying a program one really doesn’t need, and learn how to go straight to the source for information.

What is a tax lien?

According to Wikipedia, “A tax lien is a lien imposed by law upon a property to secure the payment of taxes. A tax lien may be imposed for delinquent taxes owed on real property or personal property, or as a result of failure to pay income taxes or other taxes.”

Infomercials and publications have led people to believe that the federal government, a state, a city, any other municipality or anyone is going to guarantee you 10%, 18%, 26%+ interest for buying a tax lien. They have also suggested that if you just pay the tax lien which may be up a few thousand dollars or so, that somehow you will be entitled to owning the home. It’s not that easy.

According to Cornell University Law School, “If the property is mortgaged, a tax lien will take precedence over the mortgage. This is why a mortgage lender may choose to protect the value of its own lien by paying the tax debt and seeking reimbursement from the property owner.”


If a bank has a mortgage on a property appraised at say $300,000, and there is a tax lien of $3000, do you think the bank is really going to not pay any tax lien or the current property tax and risk losing a $300,000 asset? Answer: Of course not.


If there is no mortgage on a property and it has a tax lien, wouldn’t this give me a better chance of owning the property?


One would think so, but before pulling out that check book, let us pull out common scene first. Say some has a tax lien where the property is worth $100,000 or more, pick your number. The property has no mortgage, assuming no other liens on the property, except for a tax lien of $1,000.

Assuming the homeowner’s debt does not exceed $100,000 of the equity in the home, and assuming that their credit is semi-decent, the homeowner should be able to take out a line of credit to pay the tax lien, then finance the tax payment, and write off the interest on the home equity loan.

If the homeowner didn’t want to this, they could take out a home equity loan for $1,000 or whatever minim the bank will require, put the house up for sale, and pay off the equity loan on the closing sale date, and walk away with $98,300 less real estate sales commissions, interest costs, and other expenses.

If for some reason this still could not be done as described above, and the homeowner can’t get a bank loan or home equity loan for the tax lien, then the homeowner could apply for a Via/ MasterCard etc., credit card at any retailer with instant approval (again, assuming decent credit) and get anywhere from $1,000 to $5,000 initial credit line. The homeowner then can take the cash advance option (yes, I know the credit card issuer can often charge 18%-26% plus fees, but hold on), then pay off the tax lien.

After payment of the tax lien, the homeowner then should be unrestricted to get a home equity line of credit to pay off the credit card cash advance. If you are thinking of doing this, check with the bank first and ask if you pay off the tax lien, then at you will quality for a home equity loan right after.

So, back to the credit card cash advance.

Yes, this is costly in terms of interest, but one is borrowing the money for a period of say 15-60 days tops. Thus one is not paying 18-26% per year in interest, they are paying only for the time the loan is outstanding plus what ever the cash advance fee is. Wouldn’t this be a better way if one didn’t have the money, and wanted to secure a $100,000+ real estate asset than to borrow $1,000 from anywhere you can? of course.

Yet, these infomercials are full of people who suggest that anyone can just pony up some change from a jar, buy a tax lien, get up to or over 26% interest, and if the homeowner don’t pay the lien, you get the $100,000 hours for $1,000.00

Again, if there is a mortgage on the house, you bet the bank will jump in there, pay the tax lien before anyone else even gets a shot at it. The bank can then retain interest in the home, foreclose on it, and walk away with a lot more than $1,000.

Now there may be a few examples where one might be able to but the home with virtually no money. Examples could be:

1. The homeowner had their head in the sand;

2. The homeowner was stranded on a desert island;

3. The homeowner died and had no spouse or heirs;

4. The house is built next to a nuclear power plant with underground waste seepage into their water supply;

5. The home is on a flood plane where they can’t buy flood insurance , and it floods 6 times a year;

6. The home is condemned and requires $150,000 in repairs, or other extreme situations.

To be able to pay off a small tax lien, and buy a valuable house (“free and clear”), and re sale it for a big profit, is not common.

After a quick check on a commercial site (not going to give them free advertising here), the source states:

all 50 U.S. states, tax deed sales require “competitive bidding.” Thus the likelihood one is going to buy an expensive property for the cost of an iphone is about the same odds as winning the lottery. Basically, you hope no one shows up to bid.

Keep in mind that infomercial can look like TV newscasts or TV interviews, but they are nothing more than paid commercial ADVERTISEMENTS.

If you here the word “guaranteed” or “costs nothing” or “it’s legal,” one might ask if it costs nothing, is legal, and is guaranteed, and so easy why isn’t everyone doing this? Answer: It require one to get up off the couch to begin with. And what is this guy on TV at 1:00 AM doing with a 22 year old model who is buying into everything he says. Answer: She is paid to say whatever the script says to say.

Some websites and infomercials suggests that tax lien investing is a “secret,” where you can earn all this high interest. There is no secret to this, and one doesn’t have to spend any money on a program to lean about this.

Get Free Information From Your Local Property Tax Collector

To find out more, all one has to do is call their local municipal (county) property tax collector and ask about investing in tax lien certificates or property tax lien sales.


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