April 8th, 2009 | 
Author: Tax Lien Certificates are those certificates which offer guaranteed and secure returns of up to 50%. These tax lien certificates are independent of state of economy, bank interest rates and stock market. Importance of tax lien certificates start when a property owner starts defaulting on his/her taxes due to the state or local authority. The local authority then issues tax lien against such property. An individual can bid for this tax lien, and will receive certificate from the county or municipal corporation.
There are two basic advantages of holding a tax lien certificate – either a high yield from the defaulter if the defaulter decides to pay off all the defaults, or ownership of the property after a defined period of time. Individuals have been lapping up tax liens more because of these two benefits. A fixed percentage rate, mandated by a government agency, or the title to property at a substantial discount are incredible benefits rarely seen with any other real estate transactions.
All the counties throughout the country issue these certificates to individuals and guarantee returns ranging from 16% to 50% on the investment.
How does it work?
State or municipal bodies need funds to run various services – police, fire fighting, etc. Property tax is one of the major contributors to these funds. Now, some property owners run into rough times, and hence unable to pay their property taxes to the authorities. The authority loses money in the process.
Tax lien is a novel way to avoid such situation. The county or local authority then raises funds against the defaulted tax amount. It issues tax lien certificate for the defaulted dues. The certificate holder, through bidding process, takes ‘first’ charge of the property. Now two possibilities may occur – one, the property owner pays off all the dues, and two, the property owner is unable to pay off.
Scene one – when the property owner is ready to pay all the dues. If the tax lien has been created, the property owner has to pay the default amount plus interest between 16% to 50% (as mandated by the state). This ensures higher return the certificate holder.
Scene two – when the property owner is unable to pay the dues and declares bankruptcy. This situation leads to foreclosure of the property. In this case, the certificate holder has the ‘first’ charge i.e., he/she is the first owner of that property. Certificate holder can then sell the property ensuring handsome profits.
All in all, a tax lien certificate proves to be an excellent instrument of investment.
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