Tax Lien Purchase - From the Taxpayer’s Perspective

Having tax liens time tolling on credit reports is clearly a challenging experience to be had by all concerned. However, the basis of that action is the actual equity that the taxpayer has in the property, and in this event, that equity serves as a rescue package, which actually assists in dealing with the debt incurred. Certainly it is unfortunate to lose one’s equity, but in times of financial distress, it may represent the difference between economic survival and bankruptcy.

Vertical Equity & Horizontal Equity
Tax systems should be fair, and when people are taxed differently, and when the services provided by governments confer benefits on some people while denying others enjoyment of the same, sound reasoning needs to be provided for justification of this action.

Of course this refers to principles of horizontal and vertical equity. Vertical equity allows people to be taxed at different amounts due to their different situations, as is the case for example with low income earners and high income earners, but horizontal equity demands that people with the same ability to pay and the same ability to enjoy services should be taxed equally. For this, a prime case in point is found in the situation of two people of the same income, but one gets tax relief due to having performed past duties in a role of public office.

Here, an exemption is enjoyed by the former public official, merely due to his past service and for no other reason. This is a transgression of the principle of horizontal equity. Clearly there may be policy considerations involved in such a tax structure, but the principles of equity need to prevail in order to maintain conformity.

If the owner of property receives services to land such as water, sewerage, garbage collection and other utilities, there exists an argument that these services run with the land and so regardless of a person’s income, status or position, the principle of horizontal equity prevails when all property owners receive the same service, and all of them own property.

This assumes that the taxation charged is according to the size of the property and the amount of services consumed. If it is the case of the tax being calculated on some other criteria, there may be room for the seed of injustice to enter the matter.

In the case of tax being calculated according to the value of the property, this value may change with market conditions, and the property owner may find that the amount of taxation is not amended accordingly. Further, the valuation itself may be incorrect, and in this event a legitimate argument for contest with the tax authority exists, despite the fact that this method may be a statutory procedure and offer no relief in a court of law.
 
Due Process of the Law
However, taxation by a government receives its legitimacy through the law,and taxpayers are given the benefit of their Fourteenth Amendment rights of due process, as statutory procedures provide for a predetermined standard that needs to be observed in tax administration.

Within this process are opportunities for the taxpayer to communicate with tax administrators, in order to resolve the issue in the most favorable manner possible, and the taxpayer may contest the manner in which the procedural rules have been followed.

If the debt is not satisfied within the required period after notice, a lien will be placed on the taxpayer’s real and personal property, including future income and property.

The tax authority may decide to sell the property itself, or place tax liens for the general public to purchase the rights of collection of the amount owing on the lien, in order to recoup the outstanding amount.
If a tax lien is sold to a third party, the taxpayer is obliged, along with the principle, to pay all fees, charges and interest applicable to the principle debt, to the holder of the lien, but has a period of redemption to satisfy the debt in full. After this period expires, the lien holder is able to foreclose on the property and acquire title to it.

The advantage to the taxpayer in this instance is that they are able to communicate with the holder of the lien, and persuade the holder to refrain from foreclosure. Particularly if regular repayments are being made, the interest return on the lien holder’s investment may be attractive to such an extent that foreclosure may be avoided.

Real estate liens are attached to the property, and the taxpayer needs to consider the instance of where the outstanding tax debt is large and equal to or greater than the property itself. In these circumstances, it may well be that the most prudent course of action is to allow foreclosure, and allow the debt to be partly satisfied. Otherwise, any repayments would be funding a debt that may never actually show signs of reducing, which of course should be the focus of any repayment strategy.

In this turn of events, the determinative factor is the state of the property market, which could fluctuate to levels where the decision needs to be reconsidered at regular intervals.

 

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