Difference between revisions of "Buy a Tax Lien Certificate"

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== Steps ==
 
== Steps ==
 
===Getting Started===
 
===Getting Started===
#Understand tax liens. A tax lien represents an unpaid tax debt on a property. If a property owner does not pay their taxes within a certain time period (it varies by jurisdiction), tax collectors will put the unpaid taxes up for auction. It is through this auction process that you have the opportunity to purchase a tax lien. <ref>http://www.bankrate.com/finance/real-estate/buying-a-home-in-a-tax-lien-sale-1.aspx</ref>.
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#Understand tax liens. A tax lien represents an unpaid tax debt on a property. If a property owner does not pay their taxes within a certain time period (it varies by jurisdiction), tax collectors will put the unpaid taxes up for auction. It is through this auction process that you have the opportunity to purchase a tax lien. <ref name="rf1">http://www.bankrate.com/finance/real-estate/buying-a-home-in-a-tax-lien-sale-1.aspx</ref>.
 
#*In the auction the highest bidder wins. The bidder then pays cash to the government in exchange for the lien, thereby transferring the risks and rewards of the lien from the government to the bidder.
 
#*In the auction the highest bidder wins. The bidder then pays cash to the government in exchange for the lien, thereby transferring the risks and rewards of the lien from the government to the bidder.
 
#Learn how you make money on a tax lien. There are two ways to get a return on investment from a tax lien. The first is through interest payments. The second is through potential ownership of the property.  
 
#Learn how you make money on a tax lien. There are two ways to get a return on investment from a tax lien. The first is through interest payments. The second is through potential ownership of the property.  
 
#*When you purchase a lien the property owner is required to pay back the entire value of the lien plus interest. Interest rates can vary widely from one location to another. Typically they may run from 5% to 36%. All of the interest goes to the lien holder.  
 
#*When you purchase a lien the property owner is required to pay back the entire value of the lien plus interest. Interest rates can vary widely from one location to another. Typically they may run from 5% to 36%. All of the interest goes to the lien holder.  
 
#*The lien will be structured to give the property owner a period of time in which to pay the taxes, usually between six months and three years.
 
#*The lien will be structured to give the property owner a period of time in which to pay the taxes, usually between six months and three years.
#*In the event the property owner cannot pay off the lien (with interest) in that period, you have the right to foreclose on the property -- or take ownership of it. This is a complex and time-consuming process and should involve the assistance of a lawyer. <ref>http://www.investopedia.com/articles/investing/061313/investing-property-tax-liens.asp</ref>.
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#*In the event the property owner cannot pay off the lien (with interest) in that period, you have the right to foreclose on the property -- or take ownership of it. This is a complex and time-consuming process and should involve the assistance of a lawyer. <ref name="rf2">http://www.investopedia.com/articles/investing/061313/investing-property-tax-liens.asp</ref>.
#Decide on an area to look for liens. Tax liens are issued by county, so you'll have to focus your efforts on specific counties if you want to make such an investment. Counties that are financially strained may be more willing to offer good deals on tax liens. They're looking for money right away instead of having to wait for property owners to pay their taxes. Investigate the financial status of various counties to get an idea of where you might get the best deals on lien certificates. <ref>http://www.foreclosureuniversity.com/studycenter/freereports/what_is_a_taxliencertificate.php</ref>
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#Decide on an area to look for liens. Tax liens are issued by county, so you'll have to focus your efforts on specific counties if you want to make such an investment. Counties that are financially strained may be more willing to offer good deals on tax liens. They're looking for money right away instead of having to wait for property owners to pay their taxes. Investigate the financial status of various counties to get an idea of where you might get the best deals on lien certificates. <ref name="rf3">http://www.foreclosureuniversity.com/studycenter/freereports/what_is_a_taxliencertificate.php</ref>
 
#*A list of counties in the United States can be found at http://www.naco.org/Pages/default.aspx.
 
#*A list of counties in the United States can be found at http://www.naco.org/Pages/default.aspx.
 
#*Government financial statistics are a matter of public record. You should be able to find information on county finances on the Internet. Try doing an Internet search for the records of a county you're interested in.  
 
#*Government financial statistics are a matter of public record. You should be able to find information on county finances on the Internet. Try doing an Internet search for the records of a county you're interested in.  
#Investigate the laws of the county or counties you'll be operating in. Real estate laws vary between jurisdictions, so you'll want to familiarize yourself with the laws where you plan to invest. Most of what you'll need to know will be on a county's website, so start there. If you have further questions, call the county executive office and get specific answers. <ref>http://www.creonline.com/tax-lien-investing-basics-part-1.html</ref>
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#Investigate the laws of the county or counties you'll be operating in. Real estate laws vary between jurisdictions, so you'll want to familiarize yourself with the laws where you plan to invest. Most of what you'll need to know will be on a county's website, so start there. If you have further questions, call the county executive office and get specific answers. <ref name="rf4">http://www.creonline.com/tax-lien-investing-basics-part-1.html</ref>
#*You should specifically find out when the county can legally place a lien on a property. If they don't follow proper procedures, you could wind up with a lien that was illegally placed, in which case you could lose your investment. Keep this in mind as you investigate specific properties, and make sure a lien is legitimate. <ref>http://www.bankrate.com/finance/real-estate/buying-a-home-in-a-tax-lien-sale-2.aspx</ref>
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#*You should specifically find out when the county can legally place a lien on a property. If they don't follow proper procedures, you could wind up with a lien that was illegally placed, in which case you could lose your investment. Keep this in mind as you investigate specific properties, and make sure a lien is legitimate. <ref name="rf5">http://www.bankrate.com/finance/real-estate/buying-a-home-in-a-tax-lien-sale-2.aspx</ref>
 
#*Find out if there are any legal limits on what you're allowed to do in collecting payment from property owners. Are there specific times of day you're allowed to call? How many phone calls or letters constitute harassment? Make sure all of your collection efforts are legal.
 
#*Find out if there are any legal limits on what you're allowed to do in collecting payment from property owners. Are there specific times of day you're allowed to call? How many phone calls or letters constitute harassment? Make sure all of your collection efforts are legal.
 
#*Learn the foreclosure process in your area. If a homeowner fails to satisfy the lien within the prescribed time period, you can start foreclosure proceedings to obtain the property. Foreclosure laws vary. Use http://www.foreclosurelaw.org/ to find foreclosure laws in your locality.   
 
#*Learn the foreclosure process in your area. If a homeowner fails to satisfy the lien within the prescribed time period, you can start foreclosure proceedings to obtain the property. Foreclosure laws vary. Use http://www.foreclosurelaw.org/ to find foreclosure laws in your locality.   
 
#*If you're having trouble navigating county laws, you might want to speak with a real estate attorney with experience in these matters. He or she can fill you in on all you need to know about local laws.   
 
#*If you're having trouble navigating county laws, you might want to speak with a real estate attorney with experience in these matters. He or she can fill you in on all you need to know about local laws.   
#Find out how the county conducts its lien-certificate sales. Usually either the county treasury or tax office oversees these sales, so start by contacting them to find out what you need to know. Oftentimes lien sales are held by public auction. Sometimes they are handled online. Find out exactly how a county conducts lien sales in order to keep up with other investors. <ref>http://www.investopedia.com/articles/investing/061313/investing-property-tax-liens.asp</ref>
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#Find out how the county conducts its lien-certificate sales. Usually either the county treasury or tax office oversees these sales, so start by contacting them to find out what you need to know. Oftentimes lien sales are held by public auction. Sometimes they are handled online. Find out exactly how a county conducts lien sales in order to keep up with other investors. <ref name="rf2" />
 
#*Inquire about when and where the next sale will be held.
 
#*Inquire about when and where the next sale will be held.
 
#*Find out the format of the auction. Sometimes they'll ask for bids on the lien. For example, bidding may start at $1,000 and then rise as bids come in. In other cases you may bid down on the interest rate for the lien. In that case the interest rate may start at 20% and go down. Find out which format your county uses so you can devise a strategy for the auction.
 
#*Find out the format of the auction. Sometimes they'll ask for bids on the lien. For example, bidding may start at $1,000 and then rise as bids come in. In other cases you may bid down on the interest rate for the lien. In that case the interest rate may start at 20% and go down. Find out which format your county uses so you can devise a strategy for the auction.
 
#*Remember that the homeowner's liability is not affected by how much you pay for the lien. Even if you pay too much, the owner doesn't owe more than the original tax bill and interest. Keep that in mind when planning your bids.  
 
#*Remember that the homeowner's liability is not affected by how much you pay for the lien. Even if you pay too much, the owner doesn't owe more than the original tax bill and interest. Keep that in mind when planning your bids.  
#Find out what your responsibilities will be once you buy a lien. Each jurisdiction has its own laws regulating lienholders, so investigate your locality. You may be required to provide written notification to the property owner that you've made the purchase. Also know the local foreclosure laws, since you can threaten to foreclose on the property if the homeowner doesn't pay their debt. Make sure you learn about any responsibilities you'll have in accordance with the law. <ref>http://www.investopedia.com/articles/investing/061313/investing-property-tax-liens.asp</ref>
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#Find out what your responsibilities will be once you buy a lien. Each jurisdiction has its own laws regulating lienholders, so investigate your locality. You may be required to provide written notification to the property owner that you've made the purchase. Also know the local foreclosure laws, since you can threaten to foreclose on the property if the homeowner doesn't pay their debt. Make sure you learn about any responsibilities you'll have in accordance with the law. <ref name="rf2" />
  
 
===Finding Liens for Purchase===
 
===Finding Liens for Purchase===
#Obtain a list of properties for sale. When you speak with the county treasury or tax office, ask about getting a list of the properties that will be auctioned at the next lien sale. They may have a complete list on hand, or they may refer you to a local periodical that will print the list. Make sure you get a list before the auction date. That way you can research the properties for sale and plan out your investment more effectively. <ref>http://www.creonline.com/tax-lien-investing-basics-part-1.html</ref>
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#Obtain a list of properties for sale. When you speak with the county treasury or tax office, ask about getting a list of the properties that will be auctioned at the next lien sale. They may have a complete list on hand, or they may refer you to a local periodical that will print the list. Make sure you get a list before the auction date. That way you can research the properties for sale and plan out your investment more effectively. <ref name="rf4" />
#Ask if there are any unsold lien certificates from a previous sale. If there are certificates left over from the last sale, the county might offer them for sale early or at a discounted rate. If there are unsold liens, ask to see the list. Then inquire whether they will be offered for sale early. <ref>http://www.creonline.com/tax-lien-investing-basics-part-1.html</ref>
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#Ask if there are any unsold lien certificates from a previous sale. If there are certificates left over from the last sale, the county might offer them for sale early or at a discounted rate. If there are unsold liens, ask to see the list. Then inquire whether they will be offered for sale early. <ref name="rf4" />
 
#*Keep in mind that leftover liens may have gone unsold simply because they were bad investments. If you do come across any unsold liens, investigate the properties carefully. It's possible that you discovered a gem that no one noticed at the last auction, but the lien could be a money pit, too. Find out everything you can about unsold liens to make sure you'll be making a good investment.  
 
#*Keep in mind that leftover liens may have gone unsold simply because they were bad investments. If you do come across any unsold liens, investigate the properties carefully. It's possible that you discovered a gem that no one noticed at the last auction, but the lien could be a money pit, too. Find out everything you can about unsold liens to make sure you'll be making a good investment.  
#Narrow down your list. The list could have hundreds of liens for sale, and it's impossible to do a detailed investigation of that many. If there are a lot, cut the list down. <ref>http://www.creonline.com/tax-lien-investing-basics-part-2.html</ref>  
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#Narrow down your list. The list could have hundreds of liens for sale, and it's impossible to do a detailed investigation of that many. If there are a lot, cut the list down. <ref name="rf6">http://www.creonline.com/tax-lien-investing-basics-part-2.html</ref>  
 
#*A good way to do this is to think about how much money you have to invest. If you plan on investing only a few hundred dollars, then you can easily cross off any liens that require more money than that. If you have several thousand dollars to invest and are looking for a big profit, don't bother with smaller liens.
 
#*A good way to do this is to think about how much money you have to invest. If you plan on investing only a few hundred dollars, then you can easily cross off any liens that require more money than that. If you have several thousand dollars to invest and are looking for a big profit, don't bother with smaller liens.
 
#*You can focus on particular types of liens. Tax liens can be placed on residential or commercial properties, so focusing on one or the other could narrow down your list.
 
#*You can focus on particular types of liens. Tax liens can be placed on residential or commercial properties, so focusing on one or the other could narrow down your list.
#Investigate the properties ahead of time. Remember that once you buy a lien certificate, you assume the risk if the occupants don't pay back their debt. When you've obtained the list of liens, make sure to research all the properties you may be interested in. You want a good investment, so look out for any signs that a property may not give you a profit. <ref>http://www.investopedia.com/articles/investing/061313/investing-property-tax-liens.asp</ref><ref>http://www.foreclosureuniversity.com/studycenter/freereports/what_is_a_taxliencertificate.php</ref>
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#Investigate the properties ahead of time. Remember that once you buy a lien certificate, you assume the risk if the occupants don't pay back their debt. When you've obtained the list of liens, make sure to research all the properties you may be interested in. You want a good investment, so look out for any signs that a property may not give you a profit. <ref name="rf2" /><ref name="rf3" />
#*Find out if there's a mortgage on the property. In this case the lender might step in to pay the lien before you get a chance to buy it. Lenders might be willing to pay more than you would to protect their larger investment in the property and prevent foreclosure. They also might try to legally stop you from foreclosing on the home if you do manage to buy the lien. <ref>http://blog.nolo.com/bankruptcy/2012/10/15/why-did-my-mortgage-lender-pay-my-delinquent-property-taxes/</ref> It's better to go for homes that have the mortgage paid off, because you won't face competition from mortgage companies that have a lot more money at their disposal.  
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#*Find out if there's a mortgage on the property. In this case the lender might step in to pay the lien before you get a chance to buy it. Lenders might be willing to pay more than you would to protect their larger investment in the property and prevent foreclosure. They also might try to legally stop you from foreclosing on the home if you do manage to buy the lien. <ref name="rf7">http://blog.nolo.com/bankruptcy/2012/10/15/why-did-my-mortgage-lender-pay-my-delinquent-property-taxes/</ref> It's better to go for homes that have the mortgage paid off, because you won't face competition from mortgage companies that have a lot more money at their disposal.  
 
#*Dilapidated properties in economically depressed neighborhoods are a very risky investment. Such liens might carry higher interest rates, but if the occupants are unable to pay their debt, the interest rate won't do you any good, and you'll wind up losing money.  
 
#*Dilapidated properties in economically depressed neighborhoods are a very risky investment. Such liens might carry higher interest rates, but if the occupants are unable to pay their debt, the interest rate won't do you any good, and you'll wind up losing money.  
 
#*Sometimes occupants owe more in back taxes than the value of the home. This means that if they abandon the property, you won't even be able to earn back your investment by selling the property. Avoid such places, or at least invest with caution.  
 
#*Sometimes occupants owe more in back taxes than the value of the home. This means that if they abandon the property, you won't even be able to earn back your investment by selling the property. Avoid such places, or at least invest with caution.  
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#*Remember to take other expenses into account besides the cost of the lien. For example, if the homeowners fail to pay their taxes, you might have to start judicial foreclosure proceedings. This will lead to legal fees, which can get expensive. Keep this in mind when deciding how much to spend.  
 
#*Remember to take other expenses into account besides the cost of the lien. For example, if the homeowners fail to pay their taxes, you might have to start judicial foreclosure proceedings. This will lead to legal fees, which can get expensive. Keep this in mind when deciding how much to spend.  
 
#*The lien sale, whether online or in person, should feature a typical auction format. The lien for sale will be announced, an opening price will be set, and then bidding will start. Pay attention during the auction so you know when a lien you're interested in comes up.  
 
#*The lien sale, whether online or in person, should feature a typical auction format. The lien for sale will be announced, an opening price will be set, and then bidding will start. Pay attention during the auction so you know when a lien you're interested in comes up.  
#*Usually auctions require payment in cash or certified check. Add up what you're willing to spend on your liens, and bring either enough cash or a few certified checks. Some auctions allow you to finance a purchase. If this is the case, you should get pre-approved to avoid  administrative slowdowns. <ref>http://www.investopedia.com/articles/mortgages-real-estate/10/should-you-buy-at-an-auction.asp</ref>  
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#*Usually auctions require payment in cash or certified check. Add up what you're willing to spend on your liens, and bring either enough cash or a few certified checks. Some auctions allow you to finance a purchase. If this is the case, you should get pre-approved to avoid  administrative slowdowns. <ref name="rf8">http://www.investopedia.com/articles/mortgages-real-estate/10/should-you-buy-at-an-auction.asp</ref>  
#Notify the property owner if you're required to do so. Make sure you stay within the law during this whole process. You may be required to provide written notification of your purchase to the property owner. There may be other legal requirements as well, so keep yourself informed of local law. <ref>http://www.investopedia.com/articles/investing/061313/investing-property-tax-liens.asp</ref>
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#Notify the property owner if you're required to do so. Make sure you stay within the law during this whole process. You may be required to provide written notification of your purchase to the property owner. There may be other legal requirements as well, so keep yourself informed of local law. <ref name="rf2" />
 
#*When notifying the property owners, send a certified letter to their address. Let them know that you've bought the lien on their property. The county is supposed to notify a property owner when a lien is offered for sale, so they should already be aware of this possibility. Let them know how much they owe in back taxes and when this amount must be paid.   
 
#*When notifying the property owners, send a certified letter to their address. Let them know that you've bought the lien on their property. The county is supposed to notify a property owner when a lien is offered for sale, so they should already be aware of this possibility. Let them know how much they owe in back taxes and when this amount must be paid.   
#Pay attention to the expiration date on the lien. When you buy a lien it usually comes with an expiration date. When this date passes, you no longer have a claim on the back taxes. If the property owners aren't paying their debts, notify them again about their outstanding debt. If you do nothing, you risk losing your investment. <ref>http://www.bankrate.com/finance/investing/investing-tax-liens-fraught-risk.aspx</ref>
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#Pay attention to the expiration date on the lien. When you buy a lien it usually comes with an expiration date. When this date passes, you no longer have a claim on the back taxes. If the property owners aren't paying their debts, notify them again about their outstanding debt. If you do nothing, you risk losing your investment. <ref name="rf9">http://www.bankrate.com/finance/investing/investing-tax-liens-fraught-risk.aspx</ref>
#Collect your money when the property holders pay their taxes. The property owners still have to pay their money to the county when you've purchased a lien. When they do so the county will contact you, and you can go pick up your money at the county office. <ref>http://www.foreclosureuniversity.com/studycenter/freereports/what_is_a_taxliencertificate.php</ref>
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#Collect your money when the property holders pay their taxes. The property owners still have to pay their money to the county when you've purchased a lien. When they do so the county will contact you, and you can go pick up your money at the county office. <ref name="rf3" />
  
 
== Tips ==
 
== Tips ==