ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Buying Tax Lien Certificates

Updated on May 4, 2010

Buying Tax Lien Certificates

An investment trend that has gained momentum in recent years is buying tax lien certificates. Many high-profile people, including Robert Kiyosaki of “Rich Dad” fame, have endorsed this investment technique, and touted it as a relatively safe way to earn returns on your money that significantly exceed the dismal money market rates that are so prevalent nowadays. Some people have reported returns of 16% or even more from buying tax lien certificates, but before I even get into the types of returns people are seeing, it would obviously be helpful for me to tell you exactly what they are. The best way to do this is to give you a scenario: Let’s say that a homeowner has a property tax bill that’s past due. The government obviously wants to collect on that money, so if the homeowner fails to pay after a period of time, the government will file a lien against the homeowner for the amount of property tax owed. This lien accrues interest the longer the homeowner does not pay on it. If the situation worsens, and the homeowner does not pay his/her tax bill after a period of time (it varies by state), the homeowner could actually lose their house, and the house could be sold off for nothing more than the taxes owed on it. This is where you hear of those stories of people buying houses for “pennies on the dollar”. So how are investors able to do this? Well, the government really needs the tax money—as you know, that’s pretty much all they care about—so they actually open up the door for investors to come in and, in effect, “buy” the tax lien certificate. In other words, the investor pays the property tax bill on the homeowner’s behalf, the money goes to the government, and the investor is issued a tax lien certificate by that particular government. Again, the details of these transactions will be different based on which state you live in; I’m just giving a general overview of the concept.

Image courtesy of Microsoft Office Clip Art
Image courtesy of Microsoft Office Clip Art

Investing in Tax Lien Certificates

Once the investor receives the tax lien certificate, it’s basically a promissory note that guarantees that the homeowner will pay the tax bill back, PLUS interest, which is where the return on the investment comes from. Let’s say that a homeowner has a $1,000.00 property tax bill, and they basically fail to pay the bill in a reasonable time frame (before the due date). The state government ends up filing a lien against the homeowner, and the homeowner is now obligated to pay the tax lien within a specified time frame. This time frame will vary based on which state the tax lien is filed in. A common time frame is between 12 months and 24 months. The homeowner is obligated to pay the tax bill within that 12-month time frame, but now he/she has to pay interest on top of the regular bill. It’s not uncommon for the interest to be within the 16% - 36% range, so you can automatically see where the appeal is for the average investor. These tax lien certificates are a very low-risk investment, mainly because homeowners are highly motivated to pay their tax bills, especially when the alternative is that they will lose their home. There have been countless cases of investors being able to secure ownership of a house, paying nothing more than the back taxes owed on the property. I don’t know about you, but that sounds like a serious bargain. There are a lot of nuances to tax lien certificate investing, and the particulars vary from state to state, so if you are interested in learning how to invest in tax lien certificates, it is imperative that you gain an understanding of the details of tax sale locations and dates, and of course the laws that govern the issuance of tax lien certificates. A quick Google search can provide you with most of this information; my main objective for this hub was just to get your gears turning as far as considering buying tax lien certificates as an alternative investing endeavor.

Comments

    0 of 8192 characters used
    Post Comment

    • wolf40901 profile image

      wolf40901 

      7 years ago from South Carolina

      webs let me tell you what we discussed in my business law class. an actual lawyer teaches it, so his words not mine. you may or may not "own" the property. what may happen..IF the property gets auctioned..you will get a return of that money with the proceeds. or..you may be given first preference to buy it when it does come around. if it does not come onto an auction block, you CAN become the owner outright by default. depends on if the state sees any value in it and wants to bother.

    • SteadyHubs profile imageAUTHOR

      SteadyHubs 

      7 years ago from Georgia, USA

      I appreciate you for stopping by, websclubs.

    • websclubs profile image

      websclubs 

      7 years ago

      Hi SteadyHubs,

      Alternative Investing, are you considering buying tax lien certificates? "vary from state to state" investors being able to secure ownership of a house, paying nothing more than the back taxes owed on the property... interested in learning how to invest in tax lien certificates? it's a very low-risk investment, mainly because homeowners are highly motivated to pay their tax bills, especially when the alternative is that they will lose their home. Again, the details of these transactions will be different based on which state you live in.

      Most interesting idea Thanks.

      -Buying Tax Lien Certificates-

      https://hubpages.com/@websclubs

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)