Tax Lien Certificates – Uncover What They Are All About

For the most part, if a person or property owner falls behind on their taxes, the government can take over the property, sell it, or choose to place a lien on it in order to try to recoup some of the money that’s still owed on it. Usually, investors use this opportunity to come out on top with a really good property. Find out what you should know.

Pros

Often times, people tend to get tax lien certificates in an effort to get a property at an extremely low price or to obtain a percentage rate that is fixed. This means they usually can come out of the good end of the stick when it comes to getting property. This is because when many people are stuck in a bad situation and can’t pay for property taxes, the county will put a lien on the house. If the amount is not paid, the home can be sold. Those that have the money to spend can really make a nice investment on a property that’s being sold for much less than it’s worth.

Cons

Even though tax lien certificates sound like a great option, they're not without their problems. For instance, if you’re going to take the risk of paying money, you have to be prepared for the unexpected. If you are someone that is going through the process by yourself, you need to do serious due diligence to make sure you’re getting a good property. This means finding out if the property is valued correctly. Many times, some people lose out because they buy a property that is basically worthless. It could look like a million bucks, but if it’s in a flood zone and gets rained out each year, it’s a bad investment. Also, there are no refunds when it comes to getting tax lien certificates and buying properties at auctions, so proceed with caution.

The Fine Print

As an investor, it’s important to realize that just because you’ve purchased tax lien certificates doesn’t mean that you own the property free and clear. Basically, it means you’re allowing the property owner more time to scrape up funds to pay their fees owed, along with any other costs or interest. If this happens, then the homeowner will be able to keep their home. Yet if they cannot do this, then they foreclose and the investor, who owns tax lien certificates, gets the property and can do whatever he or she likes with it. This could mean keeping or selling it if they want.

The investor will make some type of money regardless of which way it turns out. If the homeowner loses the home, the investor gets the property. Yet, if the homeowner is able to keep the home, then they still would have paid the investor back with interest.

The Bottom Line
When it comes to tax lien certificates, if you’re someone who doesn’t have an eye for profitable properties, doesn’t know how to research property values or isn’t okay with taking some risk, then it’s good to work with someone that does or simply wait until you build up your knowledge base as well as cash to spend.