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• Risk Analysis - Tax Liens
• Tax Liens and Competing Claims
• Tax Liens and Statute of Limitations
• Discharging a Tax Lien
• Tax Liens - From the Tax Lien Purchaser's Perspective
• Tax Liens - From the Government's Perspective
• Tax Liens - From the Tax Payer's Perspective
• Negative Effect of Tax Liens on 3rd Parties
• Pitfalls of Investing in Tax Liens
• Pitfalls of Tax Lien Sales for Taxation Authorities and Local Government

Real Estate Property Tax Liens - When Are Real Estate Tax Liens Imposed?

Acquiring property at a fraction of the cost is no doubt an undeniably favorable proposition to all. Still, a large return on an investment necessarily demands a large risk, and rarely is one divorced from the other. Still, by careful appraisal of the numerous variables affecting a real estate property tax lien and deeds on property, an investor is able to channel funds into real estate instruments that pay an attractive rate of return, and offer wide possibilities of property acquisition.

Death & Taxes
Passed into our collective consciousness is the age old saying that there is nothing certain but for ‘death and taxes,’ however, the recent economic downturn in the US economy has to an increasing extent made the word ‘tax’ synonymous with the word ‘opportunity’.

The property tax in general has been the subject of routine criticism, and often it is directed to the fact that in many jurisdictions, the level of tax is assessed on the market value of the property, which at the best of times is subjective and prone to a large margin of error.

To low income earners, this indulgence enjoyed by property valuers can have devastating effects, particularly when a tax debt is accrued. For this reason tax on property is considered to be a premium on injustice,but the law is imbued with the authority of multi-generational collaboration, and did not develop in a vacuum.

Particularly in a democratic society, it is the publicly elected representatives that make up a legislature and so, who are responsible for the laws operating at the time.

Governments of Federal, State and Local tiers, all depend on taxation to fund public expenditure, and so taxation such as that applied to property, is one that cannot be avoided, and in the event of outstanding taxes, is one that will inevitably lead to the property of the taxpayer having real estate tax liens placed upon it.

Consequentially, the various taxation authorities have resorted to selling to third parties, the right to collection of this outstanding tax debt. Here, the purchaser of tax liens on real estate is able to provide the outstanding funds to government in the purchase price of the lien, and in return inherits the right to recoup the debt form the property owner. If the delinquent taxpayer fails to satisfy the debt within the redemption period, the holder of the tax lien has the right to institute foreclosure proceedings and acquire title to the property. In this way investors can acquire properties through tax liens.

In this instance, the investment may seem attractive but, other variables also affect the eventual result.

Tax Deeds & Tax Liens
Tax administrators may choose to sell a tax lien or a tax deed. Both retain the same features of the right to recoup the outstanding debt, but in the case of a tax deed, the purchaser receives immediate title to the property, whereas a tax lien holder receives the right to merely collect the outstanding debt immediately.

A predetermined interest rate penalty applies to either tax debt and if the debt remains outstanding, the property title will be surrendered to the holder of a tax deed on expiry of the redemption period, yet for the holder of a mere lien, to obtain title to the property, the holder will need to commence proceedings for foreclosure at this time.

Due process of law needs to be carefully observed, corresponding to the applicable jurisdiction in which the lien or deed is purchased, in order to protect the holder’s investment. Courts often set aside tax liens for failure to observe the right of due process due a citizen under the Fourteenth

Amendment of the Constitution.
The holder of a lien seeking to foreclose on a property may meet competition as other creditors assert priority and over the assets of the delinquent taxpayer, and so a thorough search must be entered into prior to purchasing the lien, in order to identify other creditors.

When purchasing a lien or deed, consideration needs to be given to the purchase price comparative to the market value of the property, and also in the case of a tax lien, reference needs to be had to the risk associated in protecting the investment through foreclosure proceedings.

The results of such comparisons are usually reflected in the purchase price of the instrument, but a failure to exercise due diligence in these areas, may find the purchaser of a tax lien or deed, with an investment that costs more than the security upon which it was bought – the real estate. Alas, upon acquiring title to a piece of real estate, the holder of a lien or deed is yet exposed to the mercy of the property market, and until this asset is liquidated, an absolute profit cannot be realized.

 

References:

http://www.savewealth.com/taxes/taxliens/