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What are Tax Lien Foreclosures?

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Tax lien foreclosures are properties that have been repossessed and put up for sale due to a tax debt owed to the government by the previous owner. For home buyers, tax lien foreclosure properties can be one of the best sources available on the market for finding cheap houses for sale. Often times, these properties are great properties in great condition and can provide great value for buyers and investors interested in buying to rent or focusing in home flipping.

Understanding the Tax Lien Foreclosure Process

Tax Lien Foreclosure Process

A tax lien is essentially a debt owed on unpaid taxes. Tax liens can be assigned to a person because of a real estate property tax debt, an income tax debt, or any other tax that goes unpaid, but tax liens are most commonly associated with unpaid federal taxes.

When a homeowner does not pay their taxes, the IRS will issue a Notice and Demand for Payment, which outlines the amount owed in taxes to the government plus additional fees and associated costs. If the tax debtor does not pay off their debt owed within the time frame specified by law, the IRS will issue a Notice of Federal Tax Lien. This essentially means that the government has the legal right to impose a lien on a tax debtor's property (tax lien certificates), which gives them the legal basis for eventually repossess the property and selling it through an auction if the tax debt continues to go unpaid. The proceeds of the auction are then used to cover the debt owed.

The Difference Between the Lien and Levy

It's important to understand what is a federal tax lien as well as what is an administrative levy issued by the IRS.

The tax lien constitutes the legal precedent for a property repossession. It states officially that a property owner has not paid their taxes, specifically details how much they owe, and that the government will have the right to repossess the property in question. However, this does not actually occur until the IRS issues a Notice of Intent to Levy. This notice is the legal act that happens when the government is actually ready to repossess the property and takes control of it for sale. It must be issued at least 30 days before the actual property seizure, which is referred to as 'distraint'. The Notice of Intent to Levy gives the IRS the power of distraint, which is the final step in the tax lien foreclosure process.

How to Buy a Tax Lien Foreclosure Home

How to Buy a Tax Lien Foreclosure Home

Homes and business properties are repossessed and sold due to tax liens quite often, and for buyers they can present some fantastic opportunities. Since the government is only looking to raise enough from the sale of the property to cover the loan debt, and has not financial interest in whether the property sells for its full market value, buyers can very often find majorly discounted tax lien homes for sale. If the tax debt owed is less than the value of the home (which it often is), savings of 10% to 50% are not uncommon. Cheap homes for sale are just one of the tax lien investing advantages.

In cases where the tax debt owed is more than the value of the home, buyers can still find deals. Government tax lien sales are not very well advertised, and they often sell with very little competition, forcing the government to take the best deal available. While formerly only professional investors and buyers in the know were able to find tax lien home sales in time to attend them and bid on property, online listings services such as have leveled the playing field for the every day home buyer or investor by making updated listings available to the public. Once you know how to buy and you're armed with foreclosure lists, you don't have to worry about wasting time with tax lien search, all a home buyer has to do to win a tax deed property sale is attend auction and bid.

Will I Become Responsible for Remaining Tax Debts?

Even if the home is sold for less than the amount of the tax lien, the new owner will in most cases not have to pay for the additional debt owed. The only exception is when the IRS requires that a home be purchased for the full amount of the tax lien owed, in which case a buyer's bid would not be approved if it were less than the amount owed anyway. However, in most cases, the IRS issues a discharge of property, which allows the property to be sold for less than the tax debt.

What More Should I be Aware Of?

Federal tax liens and state tax liens don't constitute the majority of homes sold through the foreclosure process, but they do offer some incredible deals. Tax lien houses for sale are often some of the nicer properties on the foreclosure market, so even if they are not as common as bank foreclosures, they can still offer great investment value, despite their relative rarity.

One thing to consider is that even if a home is put up for auction due to a federal tax debt, the sale is still governed by the rules of the state in which it takes place. State foreclosure laws can vary dramatically, and it's always a good idea to get familiar with the laws and regulations in your area, so you can be a more prepared buyer. If you're interested in learning more about tax lien foreclosures, join and browse listings for tax lien sales right in your area to see what's out there!

Search Government Tax Foreclosures by Top States

Search Government Tax Foreclosures by Top Cities

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