Tax Liens

What is ‘Tax Lien’

  • A tax lien is a legal claim by a government entity against a noncompliant taxpayer‘s assets.
  • If the taxes remain unpaid, the tax authority can then use a tax levy to legally seize the taxpayer’s assets in order to collect the money it is owed.
  • The City then sells those tax liens to a third party.
    Tax liens are a last resort to force an individual or business to pay back taxes.
  • Federal and state governments may place tax liens for unpaid federal or state income taxes, while local governments may place tax liens for unpaid local income or property taxes.

The Horror of a ‘Tax Lien’

  • Tax liens take priority over virtually every other lien on a property, including a mortgage.
  • Tax liens are publicly recorded and may be reported to credit agencies.
  • These two features of tax liens effectively prevent the sale or refinancing of assets to which liens have been attached, and prevent the delinquent taxpayer from borrowing money.

How To Get Rid Of  A Tax Lien

  • To get rid of a lien, the taxpayer must pay what he or she owes, get the debt dismissed in bankruptcy court or reach an offer in compromise with the tax authorities.

The Investment Opportunity

  • Investorsbuy the liens in an auction, paying the amount of taxes owed in return for the right to collect back that money plus an interest payment from the property owner.
  • That rarely happens
  • The taxesare generally paid before the redemption date.
  • The interest rates make tax liensan attractive investment.
  • If the redemption period passes and the taxes remain unpaid, the lien holder has the right to foreclose on the property.
  • Not an easy task—the lien holder must file a lawsuit to get the title to the property, Cha Ching!!
  • The pay off may or may not be worth it, especially if the property is damaged.