Tax Lien Auctions Explained
When someone owns a home and becomes delinquent on their taxes the government will place a tax lien on the property. These tax liens can then be auctioned to the highest bidder by the government. This allows the government to get paid and private investors to then receive the money owed from the homeowner including penalties and interest. It can be quite lucrative for an investor.
There are variables involved that include the fact that all tax liens are auctioned under an “As Is” condition. This means you do not get the opportunity to inspect the property before buying the debt. The home may be in great shape, but it may not and this is the risk you take. It is a risk because once you own the tax lien; the homeowner may still not pay the debt which would leave you in a position to sue for the deed. If the home is in serious disrepair it may be difficult to sell at a profit.
Best case scenario is that you win the auction and buy the tax lien and then the homeowner pays you in the specific time period allowed. In this case you get the total amount owed in addition to penalties and interest which can add up to a large profit.
The tough economy can work to your benefit if you are interested in investing in tax liens and attending (in person or online) tax lien auctions. Each state has specific rules and guidelines that must be followed. Be sure to check with your state before entering into a tax lien auction.
