Business & Finance Taxes

How to Become a Tax Lien Holder

    How Tax Liens Work

    • 1). Understand the Tax Lien Process. When buying tax liens, it is important to understand why and how they become available in order to strike the best deal. When a homeowner fails to pay these taxes for a certain period of time, the municipality has the right to place a tax lien on it. This limits the owner from selling the property without first paying off the line. Plus it gives the taxing authority the right to foreclose on the property to recoup any tax monies owed.

      In order to get their money even quicker, the local municipality holding the lien may sell it to a third party (you).

    • 2). Know What You Are Buying. Buying a tax lien certificate means that you are buying the right to the property until the homeowner pays you back (with interest). Of course if they fail to pay of the lien by the specified due date, the home is yours for the price of the lien.

    • 3). Finding Tax Liens. There are several places to look for tax lien opportunities. The first is your local tax office. Here you'll find a listing of local tax liens. State ones are usually listed in your state's capital building, while federal liens are found in The CCH Standard Federal Tax Reporter, where listing are made geographically.

    • 4). Buying a Tax Lien. There are basically two ways to buy tax lien: at auction or by a deed sale otherwise called over-the-counter sales. Although auction sales are the fairest for all, some municipalities simply aren't set up to handle this type of auction and prefer to handle tax lien certificate sales individually. Regardless of how your taxing authority handles the sale of its tax liens, one thing is certain: you'll need cash in hand. As long as you have the money to pay for it, buying a tax lien is as simple as bidding at an auction; or paying the price set at the tax office. No other approvals are necessary

    • 5). Selling the Property for a Profit. Once you have acquired a tax lien, you'll have to wait the necessary time to allow the homeowner to pay the back taxes on the property (plus your interest). But, once this deadlines passes, you are free to keep, rent or sell the property as you see fit and for whatever amount you can get without any worry that the homeowner will want any of the "extra." Your investment has paid off!

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