In 29 states, plus the District of Columbia, local governments can turn to investors to help their cash-flow by selling them property tax liens. These tax liens are sold at auction to a winning bidder. When you purchase a property tax lien, you purchase the right to collect the taxes due within a certain amount of time. If the property owner does not pay, you can take possession of the property, following the specific legal process required.
To take possession of property with a tax lien and evict a person from the home, you must follow the necessary legal process to notify the homeowner that you have a valid tax lien. This process is similar in each state, but can have some variations. For example, in Illinois, you must send a letter to the owner of the property within four months of purchasing the tax lien telling him that you have a valid lien against the property. In addition, you must send a letter before the end of the redemption period, reminding the property owner that he can pay the bill and avoid further action.
The redemption period for a property tax lien is the amount of time the homeowner has to pay off the lien and avoid foreclosure. It ranges from six months to three years. If the homeowner does not pay off the lien with interest by the end of the redemption period, the lien holder can start the process to take possession. Again, this process varies by state, with some states requiring court action, and other states following a more automated process. Once the foreclosure process is completed, you must follow any eviction processes for your state to evict the former homeowners.
Pay Other Tax Bills
If you purchased a property tax lien for back taxes, pay the tax bills for subsequent years or verify the homeowner is paying them. If you do not, these tax bills could become additional tax liens that would be auctioned off, and you may need to purchase them as well. If someone else purchases subsequent tax liens, it will make obtaining clean title more difficult because of the extra liens involved.
Obtaining clear title to the property with foreclosure may not be a simple process. The homeowner may have mortgage liens against the home, and while property tax liens take priority over mortgage liens in most states, you would need to pay off the mortgage lien before assuming clear title to the home. The same is true with mechanic's liens securing payment for home repairs, or judgment liens resulting from lawsuits.