Winning the Lien

If you win a tax lien, you essentially become the “lien holder,” and the property owner owes you the unpaid taxes plus interest. Winning the tax lien auction means you become the lien holder, and this position comes with certain rights and potential returns. 

Here’s what happens once you win the tax lien:

  • Becoming the Lien Holder:
    • Winning the tax lien auction means you hold a legal claim on the property due to the unpaid property taxes.
    • You essentially step into the shoes of the local government, and the property owner now owes you the overdue taxes plus interest.
  • Notification to Property Owner:
    • The local authorities or the auction platform will typically notify the property owner that the tax lien has been sold, and the new lien holder is now you.
  • Collecting Unpaid Taxes:
    • The property owner must now pay you the overdue taxes and any interest specified in the auction terms. This process is known as redemption.
  • Interest Earnings:
    • As the lien holder, you earn interest on the amount paid for the tax lien. 
    • The auction or local regulations usually determine the interest rate and is an additional source of income for the investor.
    • Interest rates are specific to each state and can be found on the county tax collector’s website.
  • Redemption Period:
    • The property owner is given a redemption period during which they can pay off the overdue taxes and reclaim their property. This period varies by jurisdiction and can be found on the county tax collector’s website.
  • Communication with Property Owner:
    • Establishing communication with the property owner during the redemption period may be beneficial. 
    • Some investors choose to work out a payment plan or negotiate mutually beneficial terms.
    • Keep in mind that this is NOT required. Many investors choose not to do this, and some counties might forbid this action.
  • Recording the Lien:
    • The tax lien is recorded in public records, securing your legal interest in the property. This recording protects your position as the lien holder and establishes your right to collect the unpaid taxes.
    • Contact the county tax collector after purchasing a lien if you have questions.
  • Receiving Payments:
    • You receive the payment once the property owner pays the overdue taxes and interest. This marks the successful redemption of the tax lien, which is removed from the property.
    • Remember, interest is NOT paid monthly. Investors will receive all money back plus interest at one time only when the owner chooses to pay. 
  • Non-Redemption and Foreclosure:
    • If the property owner fails to redeem the tax lien within the specified period, you may have the option to initiate foreclosure proceedings. 
    • Foreclosure allows you to take ownership of the property, subject to the legal process outlined in the jurisdiction’s laws.
  • Proceeds from Foreclosure:
    • If you decide to foreclose and the property is sold, you may receive the proceeds from the sale, which can include the initial investment, interest earned, and any additional funds from the sale.
    • This process and outcome vary by state, so please contact an attorney or tax lien professional before investing.

Being a tax lien holder gives you a unique position in the real estate investment landscape. Successful management of the above processes can lead to profitable returns on your investment. Speak with an attorney or tax lien professional to understand the details further.

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