The simple definition of a tax lien certificate is a financial note that an investor
can purchase as a result of a homeowner that neglected to pay his taxes. Every home owner is required to pay taxes to the government. When the homeowner falls behind on these payments or doesn't pay the taxes at all, the IRS steps in and puts a tax lien on their property. Counties can't afford to carry this debt for long so they put the debt up for sale. Investors can then purchase the lien and obtain a tax lien certificate.
This certificate entitles the investor to receive the amount owed when the homeowner does finally pay his taxes as well as all of the interest applied to the original debt. The investor can expect to see a return of 16% to 50% depending upon the amount of time that passes and the amount of interest added to the original tax debt. Some counties even assess penalties for delinquent taxes in which case you would collect on those as well.
This is a good investment because as we all know paying a tax debt always takes priority over any other debt that may be owed elsewhere. It is a bit of a waiting game as the investor does have to wait and see if the homeowner will pay or if the property will go into foreclosure.
If the homeowner fails to pay the delinquent taxes the property will go into foreclosure and the investor (lien certificate holder) will then hold the deed to the home and property. The investor can then sell it or keep it.
Investing in Tax Liens is becoming increasingly more popular due in part to the economic crisis. More and more people are finding it difficult to meet their homeowner tax burdens. This results in more and more counties needing to sell these debts to investors. These lien certificates are currently in abundance. If investing in tax lien certificates is something you have considered trying, now is the time.
This is truly one of the best ways to earn money during a struggling economy. There are risks involved and you must adhere to all time frames imposed by the government, but the rewards could be substantial. Do your homework; find out what requirements exist in the county you want to invest in before just jumping in.