Trends in the Tax Lien Market & Buying Tax Liens

Taxation is required by government to fund public expenditure, but when an economy gets so sophisticated that revolutionary products are given assent without any authoritative study, the potential for economic turmoil becomes a reality. The tax lien, as ancient as the concept is, has played its role in disturbing the balance of wealth in our economy, and with the end not yet clearly in sight, and tax delinquency on the rise, the mighty tax lien may survive at the expense of the national economy.

The property tax is an ad valorem tax; a tax pertaining to real or personal property, and has been routinely criticized for generations, notwithstanding its ancient traditions, that originally began in ancient Rome.

In order to fund public expenditure, and as a result of the flailing U.S. economy, governments have been scrambling to recoup back taxes and have increasingly relied on revenue provided by tax lien sales as a substitute, and even a tradable asset vis a vis conventional forms of government revenue.

The Mortgage Credit Crisis
With the multitude of jurisdictional differences as to the administration of taxation in the United States, the resultant affect has been that State and local governments have each developed their own procedural requirements which often appear to be at odds with the objectives of the Federal government, and hence this has frustrated what should be the easiest factor in tax administration; collection of the tax.

The fact that State governments in placing a tax lien on property inherit a priority to be contested by no other creditor, especially a mortgagee, has disastrous effects on the participation of mortgagees in the economy and the provision of finance to property buyers. Further, the sub-prime mortgage crisis is precipitated as bad debts such as tax liens are securitized in parcels and on sold to an investor who can no longer determine who the original mortgagee is. When they buy tax liens and mortgage notes in such a fashion, in the even to of foreclosure, this issue has particular significance since the law demands that a creditor such as a mortgagee is to be given notice of a tax lien being placed on a property. When they continue buying tax liens with a mortgage, eventually, large financial institutions have faced insolvency as their liabilities takeover their assets and capital, and with them are obliterated the funds of investors who happen to be the cornerstone of a healthy economy.

Suffering Local Communities
The social issues affecting a local community are serious, when large portions of much needed land are allowed to fall into disrepair by tax lien speculators who have foreclosed in a falling property market, and who remain reluctant to increase their investment by proper maintenance or development. Local municipalities can sometimes seek to repurchase these properties at exorbitant expense to the local government, and wealth has been seen to be redirected away from local government and the public at large, and into the pockets of a minority of industrious speculators.

To address this growing problem, the revival of the concept of ‘land banks’ has been formulated and now in its implementation, local governments have taken over property loans and have used high value properties as a bargaining tool. 

The Internal Revenue Service has altered its methods of collection with the increased use of tax liens on property. Prior to their extensive utilization, the IRS were adept at seizure, foreclosure, and levying of properties. This sparked such a public outcry, that Congressional hearings advised that IRS strategy be modified. With the advent of the modern tax lien, revenue to the IRS has steadily increased, as the government recovers a far higher percentage of tax debts outstanding. From 2001 to 2006, IRS recovery increased by 44%, and with the increase in Federal tax liens from 168,000 in 1999 to 629,000 in 2006, the tax lien market shows no signs of contracting.

 

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