|
Tax Liens and Tax Deeds Overview
Tax Liens and Tax Deeds from WikipediaTax liens in connection with property taxes Unlike personal debts, tax liens on real estate "run with the land", meaning a property owner becomes responsible for payment even if the tax obligation was incurred by a previous owner. Depending on the law of the state or jurisdiction, the owner of the property may also be personally liable for payment of the taxes. Payment of a tax lien may occur through various methods: * Payment may be made directly by the property owner or, in many cases, indirectly by the mortgage holder using an escrow account. Notice is given both to the property owner and mortgage holder when a property tax is delinquent. Hence the mortgage holder will receive notice of the delinquency even if the property owner does not have an escrow account on the mortgage, and most often will pay the tax and then demand repayment from the owner/borrower and/or create an escrow account to recoup the proceeds. Doing so is necessary, as a tax lien is superior to a mortgage and the mortgage holder's lien could lose value if the property were foreclosed by the taxing agency to satisfy unpaid taxes. * If a property is sold by the owner prior to tax foreclosure by the government body, the tax lien (which is generally discovered as part of a title search) is usually paid as part of closing costs from the sale proceeds. * Procedures vary from state to state. Generally, in the event a tax lien on personal property is not paid within a specified time (and after several notices are generally given), the property may be seized and sold. On real property, one of two methods may be used: either the property may be seized and sold (a tax deed sale), or in some states, the tax lien may be offered to investors (in the form of a tax lien certificate) with an accompanying right for the investor, after a specified period of time, to institute foreclosure proceedings (a tax lien sale). Federal tax lien in the United States In the United States, a federal tax lien may arise in connection with any kind of federal tax, including but not limited to income tax, gift tax, or estate tax.
A tax deed sale is the forced sale, conducted by a governmental agency, of real estate for nonpayment of taxes. It is one of two methodologies used by governmental agencies to collect delinquent taxes owed on real estate, the other being the tax lien sale. Tax Deed Sale Process Real estate taxes are considered delinquent if not paid within a specified period of time. If the taxes are not paid, after legal requirements are met (such as giving proper notice to the property owner as well as others holding an interest in the property, or by filing required action in the courts), the property is offered for sale at a public auction. A Tax Lien represents a lien of unpaid real estate taxes, assessments, including penalties, advertising costs and fees. If the property owner fails to pay the delinquent taxes during a specified period of time, the county government can sell what is called a Tax Lien Certificate on the property. The Tax Lien Certificate represents the outstanding taxes on the property. Many county governments sell the Tax Lien Certificates to investors so that the county may recoup the delinquent taxes. In exchange for the purchase, county governments offer the investors interest on those Tax Lien Certificates and the guarantee that those Tax Lien Certificates will be paid off within a predetermined period of time. Interest accrues on the Tax Lien Certificate over a specified course of time until the taxes are paid. A Tax Lien Certificate is a first position lien (Senior Lien) on the property. In most states, if the property owner does not redeem the Tax Lien Certificate within a specified time period the holder of the certificate can ask the county government to begin procedures to auction the property to the public. Proceeds from the auction will pay off the Tax Lien Certificate Holder(s). Florida attorney and tax lien and deed investor Larry Loftis states that about one-half of the U.S. states are "lien" states and one-half are "deed" states, with a number of states as "hybrids." Unlike a tax lien, where only a lien on the property is being sold, a tax deed state is where the county is actually selling the property for failure to pay the property taxes. Some deed states, such as Texas and Georgia, are somewhat of a hybrid in that they sell the property at a tax deed sale, yet allow the owner a redemption period to pay of the lien and reclaim the property. A few states, such as Florida, New York, and Ohio, have both tax lien and tax deed sales. At a tax deed sale, the minimum bid is generally the amount of back taxes owed plus interest, as well as costs associated with selling the property. Bidding is done in increments from $10–$100 in most states. In the event the property is not purchased, title may revert to the county government. In most jurisdictions, the county transfers title in a tax deed sale through either a Tax Deed or a Sheriff's Deed (see Loftis below). The purchaser of a tax deed may transfer title through a quitclaim deed but would need a quiet title action to sell with a Warranty Deed (given that a Tax Deed, Sheriff's Deed, or quitclaim deed are insufficient to acquire title insurance). The hybrid jurisdictions allow a "redemption period," whereby the former owner has a specified amount of time to reclaim the property by repaying the amount bid at auction plus a penalty. For example, Texas allows a 6-month (for non-homestead, non-agricultural properties) or two-year period (homestead or agricultural properties), with a flat 25% penalty to be added to the amount paid at the sale, while Tennessee allows a full year, with a 10% penalty. As such, purchasers of properties at tax deed sales are cautioned not to make major improvements on the property until after the redemption period has expired.[edit] References * Larry B. Loftis,. Profit by Investing in Real Estate Tax Liens : Earn Safe, Secured, and Fixed Returns Every Time. Dearborn Trade, a Kaplan Professional Company. ISBN 0-7931-9517-9. References also to Ted Thomas, Leading Tax Lien and Tax Deed Authority. Return to Home Page from Tax_Liens
|
