As its name implies, tax lien investing is a form of investment that makes use of tax lien properties. Tax lien properties are properties with tax liens because the owner of it has unpaid tax balances to the government.
When an owner of a property cannot pay its tax dues to the government agency, the government’s action for that is to put a tax lien on the property. Additionally, the government can forbid the owner of the property from selling the property to another without settling first the property’s unpaid taxes. When this happens, the owner has options from which to select. For one, he can sell his tax lien and lose the property. Secondly, the owner can find a tax lien investor who will lend him a money for paying the property’s unpaid taxes. A tax lien investor can be an individual person or a company.
When finding a tax lien investor, it is important to look for a reliable investor who will be willing to transact in a legal way. Else, when the transaction will be out of the law, the owner might just be gathering more problems around him.
What will happen is that the investor will be a creditor who will lend the property owner with the amount of money that he needs. Of course, he will use the money in settling his tax payable. At some determined future time, he should be able to pay the borrowed money plus the interest to the creditor. The property will be used to secure the debt. Mostly, payment is made by installment. When we say installment, the whole payment period is divided into shorter periods at which the debtor will pay certain portions out of the whole amount.
Yet, the investor has another option too. If he no longer likes to receive the payment in an installment basis, he can sell the cash flow note to another. The cash flow notes are the instruments that evidence the indebtedness of the debtor to the creditor. The note’s selling price varies because of a number of affecting factors which includes the appraised value of the property and the credibility of the debtor.
- Tax Lien Investing – Smart Move for Investors (2010taxes.org)
- The Benefits of Being a Tax Lien Certificate Owner (2010tax.org)