Home » The Basics of Tax Liens: What You Need to Know! 

The Basics of Tax Liens: What You Need to Know! 

by janeausten
Basics of Tax Liens

A tax lien is an ongoing investment that can be made through purchasing and selling tax lien certificates. As with any good investment, a tax lien has the potential to generate high returns, but it also carries risks. This article discusses these benefits and some of the best ways to reduce them to maximize your return on this type of investment.

What Is a Tax Lien?

A tax lien is a legal claim the government places on your property when you don’t pay your taxes. It’s essentially a way for the government to recoup its losses, and it can be a real pain in the neck.

The good news is that a tax lien doesn’t mean you lose your property; it just means the government has a legal claim on it until you pay your taxes in full. And if you try to sell your property, the government has to be notified and will get a cut of the sale price.

But don’t worry—if you’re facing a tax lien, there are ways to get out of it. Contact Tax Lien code to know more! 

What Are the Benefits of a Tax Lien?

Are you thinking of investing in a tax lien? There are a lot of benefits to owning a tax lien, and we’re going to take a look at some of them now.

  • First and foremost, tax liens are a safe investment. The government backs them, so you know you’re getting a good return on your investment. And because the interest rates are so high, you can make a lot of money in a short period.
  • Another benefit is that tax liens are easy to understand. You don’t have to be an expert in finance to invest in them—all you need is some basic knowledge about real estate. Plus, plenty of resources are available online to help you get started.

So a tax lien is an excellent choice if you’re looking for a safe and profitable investment!

How Does a Tax Lien Work?

To understand how a tax lien works, investors need to know exactly what a tax lien is. Only with a deep familiarity with the tax pawn process will investors understand how it works. With this in mind, the first step in studying tax liens is determining why they are placed on certain assets. Frankly, a tax lien is placed on a house that suddenly becomes a tax defaulter. A tax lien is the last resort on behalf of the government to force someone to pay back any taxes they may have had in the past. 

More specifically, however, it is a legal claim on behalf of the state against the property of a taxpayer who fails to fulfil his taxable obligations; This is a crossroads one has to face when not paying property taxes. According to Investopedia, if taxes are not paid, “tax agencies can then use tax collection to legally confiscate taxpayer assets (such as bank accounts, investment accounts, cars, and real estate) to collect the money owed.”

It should be noted, however, that collection can be time-consuming and challenging, which is why many authorities are willing to part with a tax deposit certificate for a fee. If an investor makes a winning bid, they must immediately pay the total amount of the lien. The investor then becomes the owner of the tax deposit certificate, and the property owner is expected to repay the debt to the new bondholders.

How to Buy a Tax Lien? 

So you’re interested in buying a tax lien? Here’s what you need to know.

  • First, tax liens are sold at auction, so you’ll need to attend the sale to place your bid. You can find out when and where the sale is taking place by contacting the local tax assessor’s office.
  • The minimum bid for a tax lien is usually $1,000, but it can vary depending on the state. In some cases, you may be able to buy a lien for as little as $100, but you’ll have to do your homework to find out.

If you’re the winning bidder, you’ll have to pay the amount of the lien plus interest and other associated costs within a certain period. Failure to pay will result in the property being sold at a public auction.

How to Redeem a Tax Lien

Here’s how it works: the county auctions off the lien to the highest bidder. That person then becomes the new owner of the lien and has the right to collect the money that’s owed, plus interest and penalties.

But here’s the good news: you have a chance to redeem the tax lien before it’s sold to the highest bidder. In most cases, you must pay the original owner of the lien (the county) all of the money owed, plus interest and penalties.

But there are a few things you need to know before you try to redeem a tax lien. For example, you might not be able to get a loan to cover the cost of redemption. So do your homework first and ensure you’re aware of your options.

How do tax liens affect mortgages?

Tax liens don’t necessarily affect mortgages, but they do affect homeowners (and their creditworthiness). A property tax lien is treated as a separate debt along with the homeowner’s mortgage. When selling a foreclosed property, the lien remains attached to the property until the buyer applies for a one-time mortgage loan. The new buyer is then responsible for petitioning the county to waive the lien.

After the sale of a tax lien, there is usually a period during which the previous owner can pay the property taxes that defaulted. The exact duration varies by country. Property tax liens remain on the previous owner’s credit report even after selling the property. This could affect their future ability to apply for and secure a new mortgage until the unpaid line is settled.

Questions to ask yourself before investing in a tax lien

Every jurisdiction is unique, so research your state’s tax laws before investing. Ask yourself the following questions:

The Property

  • When was the property last appraised?
  • Has the condition of the property changed since the last assessment?
  • Where is the property located?
  • Is there a chance that real estate demand in this location will change?
  • Is the property in an area where foreclosures are common?
  • What other liens are on the property?

The Records 

  • Are all procedural requirements met when a lien is established?
  • Is there a partial payment of the unpaid claim?
  • How long is the redemption period?
  • What is the maximum interest rate allowed by the state?

The Market 

  • What is the current market yield for a tax lien?
  • Who are my competitors, and how experienced are they investing in tax mortgages?
  • If the responsibility of researching liens and covering tax obligations isn’t your thing, you might be able to invest in a tax lien mutual fund.

If the responsibility of researching liens and assuming tax liability isn’t your thing, you might be able to invest in a tax lien mutual fund.


Now that you know all about tax liens, it’s time to decide if this is the right solution for you. Remember, a lien is a serious step to take, and it’s essential to understand all the consequences before moving forward. If you’re unsure, talk to a tax professional such as Tax Lien code, to get more advice. Only you can decide whether a tax lien is the right step for you. Make sure to weigh all your options and understand the risks before taking action.

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