What Is a Tax Lien Foreclosure?
Tax lien foreclosure is the sale of a belongings on account of the property owner’s failure to pay their tax liabilities. A tax lien foreclosure occurs when the property owner has not paid the specified taxes, in conjunction with belongings taxes and federal and state income taxes.
Key Takeaways
- If a belongings owner fails to pay taxes on the belongings, it must result in a tax lien foreclosure.
- Government executive deal with delinquent belongings taxes by the use of tax lien foreclosures and tax deed product sales.
- In a tax deed sale, the property is obtainable at auction with a minimum bid of the taxes owed plus passion and any costs to advertise the property.
How a Tax Lien Foreclosure Works
A tax lien foreclosure is one in every of two methods a government authority would perhaps use to take care of delinquent taxes on the belongings; the other is referred to as a tax deed sale. A statutory lien is first located against the property of the one who has didn’t pay taxes.
Tax liens will also be particular liens against particular belongings—as an example, with belongings taxes and explicit analysis liens. They can also be fundamental liens against all belongings of the defaulting taxpayer, as with regards to federal or state income tax liens.
The lien is represented by the use of a tax lien certificate, that can be introduced by the use of the state to a imagine or investor through a public auction. Tax rules prevent the owner of the property (who didn’t pay their taxes) from bidding at the auction. Tax lien certificates accrue passion at a collection value, making them a most likely attractive investment since they are tied to a troublesome asset—that is, precise assets. In Arizona, as an example, consumers can download up to 16% in step with annum on a tax lien certificate.
Redemption Period for a Tax Lien Foreclosure
In some tax lien foreclosure court cases, the property owner would perhaps now and again be granted a redemption period—a decided on period right through which the original owner has a possibility to pay the lien and other fees. During the redemption period, which will also be as fast as 3 months or as long as 3 years, passion and penalties accrue to the investor keeping the tax lien certificate. If and when the debt is resolved, the investor is reimbursed their investment plus gathered passion and prices on the solution date.
The redemption period could also be previous to—or now and again after—a foreclosure auction has been held.
If all makes an try to bring together on the delinquent taxes had been exhausted and the redemption period expires, the lien holder can get started up a judicial foreclosure proceeding against the property itself. The court docket then orders a foreclosure auction be held to collect the money to meet the unpaid tax lien. The tax lien foreclosure court cases usually finish consequence inside the lien holder acquiring the property.
Tax Lien Foreclosure vs. Tax Deed Sale
Foreclosing against the property may also be carried out through a tax deed sale. In a tax deed sale, the property itself is obtainable. The sale that occurs through an auction has a minimum bid of the quantity of once more taxes owed, plus passion, along with the costs associated with selling the property. Any amount bid by the use of the successful bidder in way over the minimum bid would perhaps or will not be remitted to the delinquent owner, depending on the jurisdiction.
