Government Tax Foreclosures: Liens and Deeds
Government tax foreclosures have become the preferred housing options of first-time homebuyers who want to own a property at a low price and investors who want to earn huge profits at a minimal capital.
Government tax foreclosures may happen if homeowners failed to pay taxes associated with their properties. The government will be forced then to repossess the delinquent property and sell it to recover the taxes owed by its homeowner.
As such, most of tax foreclosure properties are sold at low cost because repossessed properties are liabilities to the government and selling them immediately is the best way to turn them into assets.
There are two types of government tax foreclosures: tax lien and tax deed. As a potential homebuyer, take some time to learn about these tax foreclosure properties in order for you to decide which one is the best for you.
Tax Lien
Tax lien occurs when the homeowner failed to pay his property taxes. The tax lien certificate of the repossessed property will then be auctioned off by the government. If you purchase the certificate, you will then take over the primary credit status from the government.
In the event the homeowner fails to pay his creditors, it is then that the property will be auctioned off and the proceeds from the sale distributed to lien holders. First in line to be paid is the tax lien holder. Tax lien is considered a safe investment because seldom that a home is sold for less than the total lien amount.
Furthermore, tax liens are attractive to investors because they have high interest rates and offer security because they are backed by a property.
On the other hand, just like with liens, tax deeds are available when a homeowner fails to pay his property tax. The tax deed method is designed for the county to recover its lost property taxes.
The recovery process involves the auctioning of the house at a government tax foreclosures sale, with no chance of redemption or for the delinquent homeowner to recover his property.
Between the two government tax foreclosures, tax deed is considered the most expensive and riskier. Potential homebuyers should be aware whether the state where the properties they want to purchase implements a tax lien or tax deed system.
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