Tax Liens are a novel way to invest money and they can turn out to be highly rewarding in certain circumstances. The simplest way to explain Tax Liens is, you can buy out unpaid taxes from the tax authorities and they will refund the money with the applicable interest rates once the defaulters pay their dues. In some instances where the taxes are defaulted for too long, the person holding the Tax Liens may even get the property in question.
How Tax Liens work
Every property has taxes attached to it and every state has its own rates and ways of collecting taxes. A good number of property owners pay their taxes on time without defaulting and without any fines, but a lot of them do not. Of those who do not pay their taxes, most of them are just cases of forgetting to pay their property taxes and not that they want to cheat the government. When a tax payment is not done within the specified deadline, there is a certain percentage that is added as interest and fine and the next time the property owner goes up to pay their taxes they will have to pay all of them in one go.
If you buy the tax out, you will pay the taxes and the defaulter’s amount, once the person pays the taxes, this amount along with the interest will be returned to you. In some cases, where the tax defaults for too long and the government decides to take the title of the property, it will be transferred to you, if you hold the Tax Liens to it.
Liens are sold on auction and the property on which the Tax Liens are placed cannot be sold or refinanced till the dues are fully paid up.