Tax Lien Foreclosure
What Is a Tax Lien Foreclosure?
Tax lien foreclosure is the sale of a property coming about because of the property owner's inability to pay their tax liabilities. A tax lien foreclosure happens when the property owner has not paid the required taxes, including property taxes and federal and state income taxes.
How a Tax Lien Foreclosure Works
A tax lien foreclosure is one of two methods a government authority might use to address delinquent taxes on the property; the other is called a tax deed sale. A statutory lien is first positioned against the property of the person who has failed to pay taxes.
Tax liens can be specific liens against specific property — for instance, with property taxes and special assessment liens. They can likewise be general liens against all property of the defaulting taxpayer, as on account of federal or state income tax liens.
The lien is addressed by a tax lien certificate, which might be sold by the state to a trust or investor through a public auction. Tax laws forestall the owner of the property (who failed to pay their taxes) from bidding at the auction. Tax lien certificates accrue interest at a set rate, making them a possibly appealing investment since they are tied to a hard asset — that is, real estate. In Arizona, for instance, investors can receive up to 16% per annum on a tax lien certificate.
Redemption Period for a Tax Lien Foreclosure
In some tax lien foreclosure procedures, the property owner may some of the time be conceded a redemption period — a specific period during which the original owner has an opportunity to pay the lien and different fees. During the redemption period, which can be just about as short as 90 days or up to three years, interest and punishments accrue to the investor holding the tax lien certificate. If and when the debt is settled, the investor is repaid their investment plus accrued interest and fees on the resolution date.
The redemption period might be previously — or in some cases later — a foreclosure auction has been held.
On the off chance that all endeavors to collect on the delinquent taxes have been exhausted and the redemption period terminates, the lien holder can start a judicial foreclosure continuing against the actual property. The court then, at that point, orders a foreclosure auction be held to collect the money to fulfill the unpaid tax lien. The tax lien foreclosure procedures generally bring about the lien holder gaining the property.
Tax Lien Foreclosure versus Tax Deed Sale
Dispossessing against the property may likewise be carried out through a tax thing sale. In a tax deed sale, the actual property is sold. The sale that happens through an auction has a base bid of the amount of back taxes owed, plus interest, as well as the costs associated with selling the property. Any amount bid by the triumphant bidder in excess of the base bid could conceivably be dispatched to the delinquent owner, contingent upon the jurisdiction.
Features
- On the off chance that a property owner neglects to pay taxes on the property, it might bring about a tax lien foreclosure.
- In a tax deed sale, the property is sold at auction with a base bid of the taxes owed plus interest and any costs to sell the property.
- Government specialists address delinquent property taxes via tax lien foreclosures and tax deed sales.
