5 Things Everyone Should Know About How Tax Liens Work

5 Things Everyone Should Know About How Tax Liens Work

A tax lien is when an owner does not pay property taxes, resulting in the government putting a claim on the property. This means the government has a stake in ownership until the debts have been paid. Many people like to use these as an opportunity to invest. However, if a person has a tax lien placed on their property, they may have options to help them pay the amount back in full.

1. Reasons for a Tax Lien

Although the primary reason for a tax lien is due to missed property tax payments, there are a number of other reasons as well. For example, failure to pay income taxes or other taxes may also result in a tax lien. The city or state may hold the lien until the debt has been repaid. Types of properties include commercial, residential, or undeveloped land.

2. Investing in Tax Liens

Liens are can be bought or sold at public auction. Those who are interested in buying tax liens can invest by buying the entire property. They may choose to make repairs, build on the property, rent the real estate, or sell it as-is for a profit. For those who are concerned about investing in the property as a whole, investments are also offered through property lien funds.

3. Risks with Investing

There are several risks that come along with investing in a tax lien. The risks are highest when a person chooses to purchase an entire property on their own. Although they have the potential to be extremely profitable, tax liens can also be risky. When purchasing the property, buyers may run into unforeseen expenses. Some properties may become neglected and may be in need of costly repairs. Others may require hefty upkeep or end up with expired liens. Those who are interested in investing in tax liens should understand the process to avoid these risks.

4. Tax Lien Statistics

Tax liens are very common in the United States. In 2012, the National Consumer Law Center (NCLC) released a study that an estimated $15 billion of property taxes goes uncollected each year. More recently, in 2017, $14 billion worth of property taxes were not paid. Roughly a third of those properties were sold to investors.

5. Help for Tax Liens

Because tax liens are so common, it’s important to know that a person who owns a property with a tax lien has many options. Many skilled attornies are familiar with tax liens and with the processes involved to save the property. An attorney may help the property owner borrow money to help pay taxes or help the government allow a sale of the property to pay off debts. They may also help the owner bargain a structured payment plan to pay back the taxes over time. Specialized tax attorneys are professionals at determining the best course of action for each personal situation. This may allow for the tax lien to be removed.