This article is about tax lien foreclosures. Tax foreclosures are essentially the sale of a property resulting from the property owner’s failure to pay their property taxes. Tax lien foreclosures occur when the property owner hasn’t paid, his, or her, property taxes, federal and state income taxes, as opposed to traditional capital loans. If you have a business property, it might be possible to borrow from lenders like OnDeck or PayPal working capital.

Key Points

  • If the owner of the property failed to pay the taxes on the property, it could result in a foreclosure
  • Government authorities will address past due, and delinquent, property taxes, by engaging in tax lien foreclosures, and tax deed sales
  • In tax deed sales, a property is sold at auction, with the minimum bid being the taxes owed, plus interest and the costs to sell the property

How Tax Lien Foreclosures Work

Tax lien foreclosures are one of two methods a government entity can use to address delinquent pass due taxes on property. The other method is called a tax deed sale. Statutory liens are placed against the property of the person who failed to pay the taxes. Tax liens can be specific liens against a specific property. The tax lien is typically represented by a tax lien certificate which can be sold by the state to a trust, or investor, through a public auction. Tax laws prevent the owner of the property from bidding at the auction. Tax lien certificates accrue interest at a set rate, which makes them very good investment vehicles for real estate investors. The sale occurs through an auction and has a minimum bid amount equal to the back taxes owed plus interest, as well as costs associated with selling the property.

In some cases, tax lien foreclosure proceedings – a property owner is granted a redemption period. The redemption period can be as short as 3 months, or as long as 3 years, during which time the interest and penalties continue to accrue. If and when the debt is resolved, the investor is reimbursed his investment, plus the interest and fees. After all attempts to collect on the taxes have been exhausted, and the redemption period expires, the lien holder can start a foreclosure proceeding against the property.

Tax Lien Foreclosure vs. Tax Deed Sale

Foreclosing against a property can be done through a tax deed sale. In tax deed sales, the property itself is sold.

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