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By Ted Thomas
The simplest way to understand tax lien certificates is to realize all real estate is taxed by the county and sometimes the county and municipality. Property taxes are collected to provide many different benefits to citizens of the county, for example property taxes pay for schools, they pay the sheriff’s department, they pay for firefighters, of course the roads have maintenance, they also pay to help the hospitals and libraries, these are just a few.
Every property owner is assessed property tax one or more times a year. In many states if the property owner does not pay the property taxes the county or municipality will issue a tax lien certificate. Anyone can purchase a tax lien certificate, they could be valued at only $50 or they could be $5,000. The county will auction the certificates. The reward for purchasing a tax certificate is the counties pay a high rate of interest on those certificates.
The rates could be as high as 16%,18%, 24%, all the way up to 36%. When the property owner finally pays the property taxes, they will recover the certificate, in other words they will pay you whatever you paid for the certificate plus the outrageously high interest rate.
So, to summarize this process, you the investor, will invest directly with the county and you will receive a check back from the county when the property owner pays the taxes. The check will be the full amount of your investment plus the high interest rate.
The objective in selling tax lien certificates is to allow investors to generate money but more importantly the county now has revenue to pay for county employees plus police and fire departments, schools, roads, libraries, and hospitals.
Tax lien certificates are a winner for the county, they get revenue, tax lien certificates are winners for the investors because they earn a high rate of interest and they are a good deal for the homeowner or property owner because it gives them time to pay their taxes.
The sales for delinquent property taxes occur in approxim ately half of the counties in the United States. Tax sales are announced by the county, sometimes in the newspaper, sometimes online, many times both. This is a very formal process, it has been in effect for over 100 years.
Most investors have no idea about the tax system. Once you learn this process and learn how to honorably and ethically take advantage of it, you can earn money for the rest of your life.
Tax lien certificates are a safe, secure investment. The property sec ures the tax lien certificate. For example, if you purchased a tax lien certificate and paid the county and the property owner never redeemed, that is comes forward and pays you back your money and the high interest, the defaulting property owner will lose the property to you.
Let me repeat that. You will invest your money with the county, your investment is secured by the real estate, the interest rate on your certificate is guaranteed. However, if the property owner fails to pay the principle and the interest the owner will default and you, the owner of the tax certificate, will be awarded the property mortgage free. Of course, this sounds way to be good to be true. However, this system has been in effect for well over 100 years.
Unfortunately, tax lien certificates and the processes and procedures are not uniform and they’re different from county to county. This will require some study on behalf on the investor.
Here is a perfect example from recent students of mine. Drew and Recia, a young couple, attended my training and followed it step by step. They purchased a tax lien certificate in the amount of $11,000. The property owner failed to redeem, that is failed to pay their taxes. The law allows Drew and Recia to become the new owners of that property, they now own the property without a mortgage. The value according to the tax assessor, the MLS system and Zillow was $180,000.
As you can see, you can make money with interest rates 16%,18%,24%,36% and every once in a while, a property owner fails to pay, and you get the property without a mortgage, that’s pretty amazing but it’s the law in all counties. Watch for my next article and I will have more about the 3,000 plus counties that sell tax lien certificates and tax defaulted properties.
Here is a couple of most frequently asked questions, I’ll have hundreds of these which I’ll make a gift to you in future articles:
- Q: Who can buy a tax certificate?
A: Anyone who has cash to pay the local county government (auctioneer)
- Q: Why don’t people pay their property taxes…?
A: Numerous answers, People pass on (die) and no one pays the property tax in many instances Heirs do not understand taxes are due. People run out of money… they become unemployed and have temporary money problems. Family crisis, hurricane blows off the roof, car accident no insurance.
Many people know Ted Thomas© as Americas tax lien certificate and tax defaulted property authority. For more than 25 years Ted has been the information source. More information and free videos go to www.TedThomas.com