If you've checked your local home listings, you've probably come across tax lien properties for sale at one time or another. While this can certainly provide a terrific financial opportunity, there are risks that you should be aware of.
If you've checked your local home listings, you've probably come across tax lien properties for sale at one time or another. Even in good housing markets, foreclosures are a reality. When financial times are tough, these foreclosures become more and more common, and so do unpaid taxes. It is this latter phenomenon that can lead to the state IRS seizing a home and putting it on the blocks. While this can certainly provide a terrific financial opportunity for anyone who has the money and patience for the game, there are risks that you should be aware of before jumping in head first.
The subprime mortgage crisis of the latter part of the decade sent many homes spiraling into foreclosure and caused many homeowners to default on their taxes. Before long, markets across the country were seeing tax lien properties for sale. The government doesn't want to get stuck with the back taxes of a delinquent homeowner, as this could burden the budget and send general taxes soaring in future sessions. Therefore, these houses are put up on the market for the highest bidder. It can be a tremendous way to get a deed for much less than it would normally go for.
If you enter into one of these auctions, you have two opportunities to get a successful ROI after having become the winning bidder on a house. The first way is perhaps the most common and most profitable way. If a home is not the subject of foreclosure, the owners are going to want to keep the home. This means they will need to pay their back taxes. Now, of course, they are paying them to you instead of the usual collector. The taxes will include interest payments and you could stand a substantial chance of making some money.
In the other instance, the homeowner never redeems their property. Because they don't, they will have no interest in paying the back taxes. You'll then need to file suit against the owners to be awarded the title to the home. This can be a messy situation, of course, and it could be an expensive, drawn out affair. If you win in the end, you'll be able to take ownership of the house and sell it for whatever you can get in the market. However, it is a risky proposition, as there is no guarantee that you'll be able to sell the home, and court costs could mount. Nevertheless, this situation can be greatly profitable if you can make it through the system with your bank account and sanity intact.
