Pros & Cons of Purchasing Tax-Lien Properties

Pros & Cons of Purchasing Tax-Lien Properties

If a homeowner fails to pay county or local taxes, the taxing authority can put a tax lien on the home. In most nations, after a lien is placed on the property, the taxing authority issues tax-lien certificate investment records, which a third party can purchase at auction. In this manner, taxing authorities have the chance to get the money it needs to meet its present budget commitments. Though investing in tax liens allows investors to reap significant returns, there are associated risks.

Return on Investment

Buying a tax-lien certificate gives the investor the rights into the tax-related debt related to a property, plus interest. The taxing authority stipulates a fixed rate of interest to each certificate. The holder of this certificate assembles interest on the tax debt until it’s paid in full. To be able to satisfy the tax debt, the citizen must pay the outstanding debt plus interest.

Property Ownership

The taxing authority gives the taxpayer a certain quantity of time to pay the tax-lien certificate. If the debt is not satisfied, the investor receives the deed on the property. As a result, the buyer could become the owner of a property at a fraction of the market value of the house.

Homeowner Bankruptcy

A huge danger of tax-lien investment is homeowner bankruptcy. If you purchase a tax-lien certificate on a property in which the homeowner has announced bankruptcy, your investment could be in danger. After a homeowner is in bankruptcy, the IRS or other lenders may have other claims on the property, rendering your tax lien unworthy.

Property Worth

Investors have to be wise and inspect the home prior to buying a tax lien. Some investors purchase certificates without obtaining the property inspected, which can be insecure, because the property could be worth much less than the investor believed, or even be unworthy. A homeowner behind on taxes may not have correctly preserved his property, and the house may require expensive repairs before it could be marketed. Also, the home could be uninhabitable as a result of significant damage to the construction.

Title Issues

To avoid the chance of name problems on the property, it’s necessary to have a title search done against the property. There may be outstanding liens on the property you need to satisfy before acquiring a clear title to the property. You can employ a local title company or a real estate lawyer to assist you with the name search.

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