Tax Lien Certificates and Tax Deed Basics
Purchasing tax lien certificates and tax deeds may be the safest form of investment you've never heard of. This is a mature investment vehicle that presents a profitable option to anyone, regardless of how much they can manage to lay out.
Where do Tax Lien Certificates and Tax Deeds Come From?
Every possessor of a parcel pays real estate taxes to the government. These taxes provide municipal and county services such as garbage pickup, 911 emergency call service, administrative services, public schools, police and fire departments, etc. When a property owner doesn't pay the tax, a tax lien certificate or tax deed is issued against the real estate. In turn, this unpaid tax debt is sold to the public through an auction.
The methodology works like this:
1. Property is in default when taxes aren't paid.
2. The tax assessor\County issues a tax lien or tax deed
3. The government sets a sale date
4. Buyers pay for the liens or deeds
5. If not purchased, the deeds are held by the county
6. If the land or housing owner doesn't come through the debt during the redemption period, the property is reassigned to the investor
Tax Lien Certificate Essentials
A tax lien certificate is a security claim in a plat in order to secure debt owed against the real estate with a tangible asset. The certificate itself isn't worth anything ; what makes it worth something is that it is backed by real estate. The tax lien certificate has no value unless the property has worth.
The tax lien certificate is used as a title on land or housing, just like a loan agreement. Liens are like a first homeowner's loan. The first mortgage records first, the second loan agreement records second. When there are other liens on a property they must be cleared before it can be bought.
Tax liens are always recorded before any others. Government regulations state that the tax lien takes preference over all other liens and encumbrances (except for IRS liens). The holder of the tax lien certificate can seize on the property if the money owed is never recompensed. This is the reason lenders usually require the real estate taxes are held in escrow and collected for you - so the property isn't appropriated due to default and a subsequent tax sale.
Tax lien certificates are issued by fifty states in America. Tax lien certificates can collect an interest rate of 16, 18, or even 24 percent. This is perhaps the most safe investment you can make because you spend money with the local government and you will get your money back from the government. If you don't get paid, you get the property.
Tax Deed Basics
The other half of the states in the U.S. offer tax deeds instead of tax lien certificates. The difference is that a tax deed is an actual deed to the land or housing in default.
At a tax deed auction, you are bidding on the actual real estate. The winning buyer gets the deed to the land or housing, usually without an existing mortgage tied to it because the county has already foreclosed on the property.
If you are seeking an investment that is conservative and solid, you cannot go wrong with tax lien certificates and tax deeds. Property always has value - even during adverse market conditions.
About the Author
Ted Thomas is known as America's Tax Lien Certificate and Tax Deed Authority. He has helped thousands of students graduate from his investment study courses and make huge profits. Get your free 57-page getting started guide today at http://www.tedthomas.com.