Property Tax Liens
Liens associated with default of property tax payments are known as property tax liens. The liens cover the entire amount of the taxes due and any additional expenses accrued in the related legal process. The government issues property tax lien certificates to interested investors who would like to invest their money in these liens. The revenue thus generated compensates for the unpaid taxes of defaulters. The investors can hold onto the certificate for a certain period of time within which the property owner is expected to pay back the entire lien amount and the interest that has accrued over that time period. The interest earned serves as an incentive for investors to invest their money in tax lien certificates in the first place.
The interest rates assigned by each state government on property tax lien certificates vary from one state to another. However, the rates are considerably higher than most other forms of investment, thus making the purchase of tax lien certificates a very profitable form of investment. Since the amount invested is tied against a real property, the risk of losing ones investment is fairly low. The rate of interest also hardly fluctuates and is almost free from all economic impacts. Although very few people are aware of property tax lien certificates as a form of investment, the fortunate few make the best use of this financial instrument to earn a huge amount of wealth.
Many states and counties conduct annual auctions where property tax lien certificates are sold to the public. These auctions are usually conducted some time in February, but might differ in a few states. Many certificates remain unsold even after these auctions and can be bought at a later date. The owner of the property is expected to eventually redeem the certificate by paying all the tax arrears and the interest accrued on the lien over the time provided for repayment. If the property owner is unable to repay the arrears before the deadline, the certificate holder can request the government to initiate the process to put the property for sale in a public auction. If the property is sold, the sale proceeds are used to repay the certificate holder the principle lien amount plus the interest accrued. Otherwise, the title to the property is transferred to the certificate holder. Due to this possibility, many real estate experts advocate the purchase of property tax lien certificates as a cost-effective form of property acquisition.
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