When most people envision making a real estate purchase, they think of touring a home, making an offer and securing their purchase by coming into possession of the physical property itself. However, for investors, there are other types of real estate purchases that can also be lucrative and may not even require the acquisition of a property (though that may be an unintended but favorable consequence as well). One potential option is a tax lien sale, but in order to benefit from this type of sale and understand what may happen during the process, you must first understand what a tax lien sale is and how it differs from other types of sales on a property.
The Difference Between A Tax Lien Sale And Tax Deed Sale
A tax lien sale can often be confused with a tax deed sale, but the two are very different. While both occur after a homeowner has failed to make their property tax payments for some time, a tax deed sale sells both the property and its unpaid taxes at auction. If a buyer is willing to pay off the outstanding taxes, they are eligible to purchase the property as well. The homeowner still has an opportunity even after the sale to pay off the taxes and reacquire the home, though this period does not last forever.
However, a tax lien sale is a bit different. The property itself does not go up for auction or sale; instead, it is the lien on the property—that is, the unpaid taxes—that are for sale. When a person buys a tax lien, they are then able to pursue the money owed themselves. While it is true that they may eventually be able to convert their purchase into a deed and acquire the home itself, tax lien sales are for the liens themselves, and the property is never up for sale at the start.
How Tax Lien Buyers Make Money
So why buy a tax lien when you could buy an entire property? The reality is that there is money to be made in tax liens if you understand how. Many investors will make their money on a tax lien sale off the interest that accrues on the outstanding balance of the lien. However, when the lien is acquired, a predetermined date is set as a deadline for lien repayment by the homeowner. After this date has passed, the lien holder may take a series of specific steps to convert the lien certificate into a deed and acquire the actual title of the home. In this way, sometimes investors are able to benefit from the acquisition of an entire property as a result of a lien sale.
Ways To Remediate The Property
For investors, tax lien sales can be useful tools to boost their finances. However, it is important to understand that the homeowner does have the opportunity to recover their home and remove the lien, which could impact the long-term passive income earned from the sale. This period, called the redemption period, is a stretch of time in which the homeowner is eligible to pay off the outstanding tax debt with interest; often, this can last from one to three years. Additionally, it is possible for the homeowner to invalidate the tax sale (which is also sometimes referred to as “setting aside” the sale). To do this, the homeowner must be able to definitively show that either the lien or sale process were defective, the lien was applied to the property in error because taxes were paid appropriately or not owed at all, or that the owed taxes were not paid for a good and legitimate reason.
If a homeowner remediates the property, which can be done even after a tax lien sale has occurred, the property returns to its owner. This means that the investor would lose out on potential interest accrual and the option to acquire the home later.
Work With The Expert Real Estate And Title Insurance Pros To Protect Your Investment
If you have acquired a property as a result of a tax lien sale or tax deed sale, it is important that you protect your investment as soon as possible. This means acquiring title insurance so that any issues with the property’s title do not result in financial consequences for you. At Mathis Title Company, we specialize in assisting real estate purchasers with their title insurance and investigation needs so that they can make an informed decision about how to proceed with their property acquisition. Reach out to schedule an appointment to discuss your options.
