The Lowdown on Tax Lien Investing | Topouzis & Associates, P.C.


August 09, 2019

The Lowdown on Tax Lien Investing

The Lowdown on Tax Lien Investing

When a homeowner owes back taxes on a property, the governmental authority to which those taxes are owed can place a lien on the property. This doesn’t mean the property will be taken and sold—rather that the tax authority becomes first in line among any number of creditors hoping to get their back debts paid from the debtor’s assets. At the very least, the homeowner’s credit report will be negatively affected, and the lien prevents the person owing the taxes from selling or refinancing the property. The lien sticks to the debtor/property until the lien is either paid off (or removed via bankruptcy) or the debt’s statute of limitations deadline passes.

But what if the tax authority gets tired of waiting for the lost revenue represented by the failure to pay taxes; what if it needs the money more immediately, to clear its books of back taxes? It could apply a tax levy—meaning the debtor’s property (above and beyond just the property in question) could be seized and sold to make up the money. Or it could find another way to get the money without having to go through that hassle. To pass the hassle onto someone else, in a sense, while getting its money right away.

That’s the basic reason for the existence of tax lien investing.

The tax authority may sell the lien at auction. In other words, someone else pays the government the amount of tax debt owed, and then that debt is theirs to collect on. The lien remains first in line among the potential creditors. The purchaser gets the right to collect on the money owed—plus interest penalty charges that can range between 15-36 percent—or, after a certain amount of time known as the redemption period, to foreclose on the property and take title.

Of course, not every state allows such lien investment, and the format and amount of interest will vary—in Florida it’s 18 percent interest; Rhode Island does tax deed certificate sales with 16 percent interest; Massachusetts tax liens likewise score investors 16 percent interest.

Investors may enjoy this form of real estate investing; but the best bet for homeowners is to pay those taxes and avoid losing title to your home.

But first you’ll need to be sure you got clear title in the first place. At Topouzis & Associates, P.C., we perform title searches and remedy problems of title in Rhode Island, Massachusetts, and Florida. We back these services with title insurance for both lenders and owners. Contact us if you’re considering purchasing a new property, whether for yourself or as an investment, so we can help ensure that you achieve true ownership of your property without having to deal with unforeseen hassles arising from problems created by someone else in the past.