Pros & Cons of Investing in Tax-Lien Properties

A tax lien is something no one wants on their record because it can be such a financial burden to overcome. When a owner of a property does not pay local or state taxes the government has the option to place a lien on the property. Once this takes place, the government issues a tax-lien certificate, which are usually sold in most counties and cities to people who are looking to invest in tax-lien properties through an auction process. Investing in tax-liens can have huge benefits but there can also be some risks to go with it. Here are some of the pros and cons of Investing in tax-lien properties.

Property Ownership

The taxpayer is granted an time period to pay off the tax-lien certificate.  If the taxpayer’s time is up and it is still not fully paid, then property is all yours! That’s right, all yours. You will be taking ownership of whatever property you held the lien on.

Homeowner Bankruptcy

A huge con for investing in tax-lien properties is when the owner of the property declares bankruptcy.  This is something no investor wants to be a part of because once the owner of the property declares bankruptcy there is strong possibility that your investment may be at risk. I know– that is not something you want to hear especially if you invest a great deal of already. The reason for this is because you won’t be the only one to have claims on the property… the IRS will too.

Return on Investment

When investors look to purchase tax-lien certificates, they gain property plus interest on the tax-related debt of the property. The investor then collects interest on the debt until it is paid off by the owner of the property.

Property Value

Investors should be doing some major research on properties before investing in a tax lien. The reason I say this is because there could be some significant damage done to the property and may require some expensive repairs that may not even be worth investing in. There are investors out there that take the chance, but it can be extremely risky because property can be worth much less than originally expected once inspecting it.

For more infromation on Investing in Tax-liens, check out: http://homeguides.sfgate.com/pros-cons-investing-tax-lien-properties-1191.html

 

Federal Tax Liens: Here’s What You Need To Know

In the United States, When you don’t pay your federal taxes, the government will eventually file a tax lien against you. To understand what a tax lien is I will go by the definition on NerdWallet who describes it as, “the first step the IRS takes to begin the forcible collection of tax debt. It secures the government’s right to your personal property.” To understand what happens when the government files a tax lien against you, review some of the subtopics below. A tax lien is also a  public document and is often called a Notice of Federal Tax Lien. What does a tax lien do? It lets other creditors know that the government has a legal claim to your property. The functionality of a lien- It covers all of your assets, such as your home, investments and vehicles, and it includes any property you acquire while the lien is in place.

Understanding The Tax assessment Process

To receive a lien, you first have to be charged a tax. If you are familiar with this process, you can ascertain that when you file your tax return and owe the IRS money, you’ve been assessed taxes. If you don’t pay the amount you’ve been assessed when you file, a lien could eventually come your way, and if you don’t pay that lien, the Federal Government will place a lien on your property.  NerdWallet also notes, “there is a statute of limitations on tax collection. The IRS has 10 years from the date of assessment to collect unpaid taxes.”

The Collections Process

So what happens when you fail to pay your taxes? How does the IRS react? Well, if you fail to pay your taxes, the IRS will send you a letter every 30 days, called a Notice and Demand for Payment. Then, a final letter from the IRS will arrive and this letter will note a final intent to levy notice. It will indicate the agency’s intent to seize your property to satisfy your tax debt. After this letter is sent you have 30 days from the date of that letter to pay your taxes or go with the option of appealing the assessment.

If you are not able to pay or appeal with the assessment within nine months of the final letter, the federal government will file a lien against you in court.

What happens next?

Once the IRS files a lien they can or will start collecting the debt by garnishing your wages, seizing your account receivables,  if you own your own business, or even collecting your homes and automobiles. Unfortunately, a lien becomes part of your credit history, it can cause you to be denied credit, and it can also affect your marriages with your spouse.

To learn more about Tax Liens and the Federal Government, visit this article by NerdWallet

New Jersey Is On The Fore Front of The Sale of Tax Liens

The tax lien system generates more than $325 million in annual revenue for New Jersey state’s municipalities and huge profits for the “suits” on wall street as well as other institutional players.  In Manchester, New Jersey the October 6 tax lien auction day is a sight to behold. Hunched over their papers , raising their hands to bid on tax liens, members of the community flock to the municipal town hall to take part in the tax lien sales. The sale of these tax liens took less than 90 minutes, and $160,000 deposited into the township treasury is testimony to the success of the day’s events.  In this sale, three institutional investors walked away with more than half of the tax lien.

The real challenge to this day comes from when the property owners realize how expensive and tasking it is to fall behind on property tax payments.  These small tax debts can quickly snowball , as it is considered debt now owned by a range of investors from private citizens to corporations and usually carry annual interest rates as high as 18 percent. If these debts are not paid in full within two years, the lien holder has the right to seize the property by means of a foreclosure, and it would not matter if the remaining debt is as small as $20, which was the case in the Manchester, New Jersey October 6 Tax Lien day.

States across the country use tax liens sales to ensure the on time payment of delinquent taxes. States like Delaware and North Carolina keep liens on properties until the debt is paid. New Jersey however, sells more liens than any other state a reported average of 400 per day.  Last year’s sales in the state of New Jersey amounted to more than 146,000 liens which totalled to $327 million in unpaid bills, according to the National Tax Lien Association.

According to The Daily Record,  “at least one homeowner impacted by the Oct 6 sale lien didn’t seem to fully grasp exactly how precarious her situation might be.” The article went on to relate on the lack of transparency of the New Jersey state officials in the sale of these tax liens. Most investors it seems. are interested in seizing the properties and this might be the root of some of the problems.

To learn more about New Jersey state tax lien sales , visit this article by The Daily Record.