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A tax lien becomes available when a property owner fails to pay property taxes. The government then auctions off the tax lien certificate. An investor can buy the certificate and take over the government’s first position creditor status, which puts the investor first in line for payment—even before a mortgage lender.
If the property owner fails to pay the creditors, the property is auctioned off, with the proceeds distributed to each lien holder in turn. The tax lien holder is paid first. Because it is unlikely that a property would sell for less than the lien amount, tax liens tend to be safe investments. Tax liens are attractive because “there’s a good chance that you’re going to get paid,” Joanne Musa of www.taxlienlady.com said.
Investors are drawn to tax liens because they offer high interest rates and the security of being backed by property. “In the lien states you’re really looking only to put your money to work at a higher rate of interest,” said Darius Barazandeh, a Texas attorney and investment expert of www.theinformedinvestor.com.
Liens are popular because they are easy for people who “don’t really want to get into full-time property management,” Barazandeh said. Tax lien investors usually seek a high interest rate for their money at minimal risk rather than the property itself.
Like tax liens, tax deeds become available when property owners don’t pay property taxes. The purpose of a tax deed is recouping lost property taxes to the county. “Some states don’t mess around,” Musa said. “If you don’t pay your taxes, they’re not going to sell a lien on your property. They are going to sell your property.”
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Author: Elizabeth Smith
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