Tax lien certificate sales are created when a tax lien is used by the government against tax defaulters to compel them to settle their accounts, or to recoup some taxes from those taxpayers who do not pay at all. Tax lien properties are put on lists of tax foreclosures that can be sold to investors who will find a tax lean to be quite profitable to invest their money in.
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The government can place a tax lien on a person who fails to pay his property taxes despite repeated reminders, the amount of which is equal to the amount of total tax owed by the tax payer. This is essentially a debt of the delinquent taxpayer, which needs to be negotiated with the government before his property becomes a part of those under tax foreclosure.
The lien on the property of a delinquent taxpayer can be placed in a tax lien auction, where many other properties under tax foreclosure are offered for sale to potential investors. These disposals of the “Tax Lien Certificates” in the auctions enable governments to have access to cash. Authorities sell off these tax liens in tax sale auctions that are generally held once a year to prospective buyers in a bidding procedure where investors can make their choice from the properties offered.
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Tax lien certificates entice potential investors to go for them as they have high interest rates ranging from 10% to 25% per annum, which are added on the tax lien offered for sale. The property owner had better act on his problem fast, as the interest on the tax lien starts accruing to his account from the very day the tax lien certificate is actually sold to the investor. The investor who purchased the tax lien makes more money if the property owner does not settle his account early enough.
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The amount to be paid back for a tax lien certificate is the total of the delinquent taxes owed by the property owner, the related interest and the cost of any sales associated with it. An investor holds on to the tax lien certificate, which is his legal claim on the investment and property associated with it. This certificate when issued to an investor can end up in either of these two possible situations:
1. When the concerned property owner is not able to pay the delinquent taxes in the time allowed him, this situation, after following certain legal procedures and paying off the remaining liens and other taxes due related to the property, allows the tax lien certificate investor to get to own the entire property in question.
2. The second outcome which happens in nearly 95% of all cases of tax lien certificates, is when the tax defaulter raises the money he owes for his required payment, saving his property from being foreclosed. The investor gets his money he invested on the purchase of the tax lien certificate and the accrued interest thereof, when a tax lien certificate is redeemed this way.
Hans Anderson
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