Before we begin to discuss on how a real estate tax lien work, we must know what exactly a tax lien is. A tax lien is a law imposed upon a property to secure the payment of taxes. A lien may be imposed for delinquent taxes owed on real property or personal property, or as a result of failure to pay income taxes or other taxes.
Almost all property owners have to pay property taxes to the country in which their property is located. In the U.S. each sate has its own way of collecting property taxes. They are generally collected annually or quarterly. If your property is at mortgage then the lender may escrow to pay the taxes for you. This is performed by taking the annual tax bill, dividing it by 12 and adding that amount to the monthly mortgage payment. In some states, a tax lien is put on the property the first day of the year, even if the taxes are not due. In such cases, the lien is removed once it is paid by the taxpayer. However, on the other hand, in a few other states a tax lien is put on the property only when the tax payer defaults on the payment in time.
In this context it is also to be notified, if there is a mortgage and the taxes are not paid in time then the mortgage company will be notified if the taxes become delinquent. Then the mortgage company may choose to pay the taxes just for the purpose of protecting its investment. It will then add the taxes to the mortgage payment to get paid back.
When taxes are delinquent there are primarily two things that happen. One that happens is a tax lien sale and the other is tax deed sale. Let us first discuss about the former one. If the taxes are not paid within it stipulated time then the county can sell the certificate to the highest bidder. It is to be noted that the bidders bid on interest rate to charge the property owner for paying the taxes. Now if in case, the property owner does pay the owner of the certificate back within a certain amount of time, the latter can foreclose on the former just like a lender. Mostly, the interest rates charged to the property owners are on the higher side, and so it is considered to be a good investment.
The second method that county applies while collecting the delinquent money is tax deed sale. This method usually involves a public auction held by the county where the property is located. In this case the highest bidder wins the possession of the property unlike tax lien sale. People who had a lien on the property are informed about the sale, and they can come and bid on the property if they want. But if they do not, then they will forfeit their rights to their claims.
However, it is always advisable, if one is interested in bidding on these types of property; he must perform a research work and must gather information on the history of the property. Most counties now have a geographical survey of all properties online. So interested bidders must contact the county much before the auction to find out how and when county expects payment.
Hence, this is to enlighten you on the fact that how real estate tax lien work.