When Taxes Are Not Paid

• When taxes are not paid on a property, a tax lien or tax deed sale is placed against the property. Each state and even counties within states handle tax liens and tax deed sales differently. Because local governments need operating capital, they sell the right to collect taxes to an investor, and the investor fronts the tax money. When the property owner finally pays the taxes along with interest and penalties, all of the funds are forwarded to the investor
  
  

Tax Liens That Are Not Repaid

• If a property owner does not pay a tax liability in full, the lien holder can foreclose on the property and take possession of it. Investors can literally buy properties for only the value of the back taxes owed and nothing more. The property owner forfeits ownership of the property when they don't pay taxes on it or fail to discharge a lien against it.
  
  

Tax Liens as an Investment

• Tax liens generate hefty fees and penalties that investors can collect. Most states incur interest rates between 12 and 16 percent and many assess hefty fees on top of the interest. When one invests in a tax lien, all of the lien principle as well as the interest, penalties and fees are payable to the investor.
  
  

Buying Tax Liens

• Tax liens are typically sold at county auctions. Each county handles the auction process differently, but there are some general rules to follow. Be ready to pay cash for the lien, so don't leave home without your checkbook. Also, don't buy a lien against a property that you haven't researched. If the property is unusable swamp land, you'll likely get stuck with the property and be out for the tax dollars.
  
  

Tax Lien Investing in Retirement Accounts

• Tax liens are not traditional retirement assets like stocks, bonds and mutual funds, but they can be held in retirement accounts. Tax liens may be purchased via self-directed IRA LLCs, which are a complex type of retirement account.