- What Is Going to Happen if I Owe Back Property Taxes?
- Can I Evict Someone If I Own and Pay the Tax Lien on a Property?
- How to Buy a Property at a Tax Sale
- How to Purchase a Certificate of Tax Lien
- Can the Lender Foreclose if There Is a Federal Tax Lien?
- How to Find Investors for Real Estate Flipping
A homeowner who doesn't pay property taxes will lose his house. Local government will eventually place a tax lien on the property, giving it the power to foreclose. The tax lien opens up an opportunity for real estate investors. Rather than go through foreclosure, governments often prefer to sell off the liens. Buying liens can give you an opportunity to snap up a house for a fraction of its worth.
Do Your Homework
To buy tax liens, you have to bid on them at auctions. Talk to the county tax assessor's office about how the lien process works and how to participate. When the county announces a lien sale, research the properties in play. An owner who can't afford to pay taxes may be skimping on maintenance. One reason to target local tax liens is that it's easier to drive by and evaluate the property up close.
At most lien auctions, whoever bids the most wins the tax-lien certificate. In other states, bids revolve around the interest you charge the homeowner. Winning in these auctions requires agreeing to charge a lower rate than other bidders. Depending on the competition and state law, you could end up being able to charge anywhere from 7 percent to 20 percent interest. If you win the auction, you pay the county. You'll need to have the cash either at the auction or shortly afterward, depending on local rules.
You can't buy a tax lien, turn around and foreclose the next day. Every state gives owners time -- several months, or even years -- to pay off the lien after you buy it. The Bankrate website says 75 percent of homeowners pay off the lien within a year. This is a win for you, as settling the debt requires paying off your bid, plus interest, to you. If your goal is to buy real estate cheap, though, you're out of luck if the owner pays up.
Taking the House
If the homeowner doesn't pay up, now comes your chance to take the house, following your state's legal procedure. This may require going to court to file a foreclosure lawsuit. Once that's done, the house should be yours, but problems can crop up. For example, if the waiting period is longer than a year, the homeowner could default on next year's taxes too. If another investor buys that tax lien, figuring out who gets the house will become complicated.
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