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Tax Lien Foreclosure

Tax Lien Foreclosure

Tax lien foreclosure refers to the sale of a property by the owner due to the inability to pay their tax. When a taxpayer is unable to pay the property tax on a property as requested by the government, a tax lien foreclosure can occur. In this situation, the government has the right to place a lien against the property due to the non-payment of property taxes.

A tax lien can be targeted at a particular property in the situation of non-payment of property tax on the property by the owner, or it can also generally be targetted at all the properties of a non-tax-paying individual due to the non-payment of federal income tax or state income tax on tax liabilities.

When a tax lien is placed on a property, a tax lien certificate is issued which can then be sold by the government to an interested buyer or an investor in a tax lien certificate sale or auction. For a lot of investors, buying up such a tax lien certificate is seen as a lucrative and profitable investment because mostly, the sale is done at a reduced price just enough to pay off the tax debt accumulated over time by the main property owner.


Contrary to popular belief, a tax lien foreclosure doesn’t only happen to property owners with a high amount of property tax debt. Tax lien foreclosure can also occur even over a small amount of tax debt by a property owner which probably has accumulated over years to include tax penalty interests and fines that the property owner might now be unable to pay due to financial constraints. The probable occurrence of a tax lien foreclosure on properties of tax debtors and delinquents by the government, however, will keep property owners constantly conscious of the need to pay up their property taxes regularly.


Most states have laws that grant the government authority to place a tax lien on any property belonging to property tax debtors, therefore property owners need to be intentional about keeping track with and paying off every tax or minor charge required by the IRS to prevent the chance of a tax lien foreclosure.


What happens when a Tax Lien is placed on a property?

Firstly the property owner will be sent a notice by the IRS to notify him/her about the state’s intention to place a tax lien foreclosure on the particular property. Then after, the office of the IRS compiles all the necessary information about the property including, detailed information of the tax debt, accrued fines, and penalty interests on the property which would be published in the newspaper to attract the attention of interested investors that are willing to buy off the tax lien certificate of the property.

For some states, however, the sale of the tax lien certificate is done via an auction sale to the highest bidder keeping in mind that the bid must cover the amount of tax debt and added fines owed to the government. The winner of the auction will receive the tax lien certificate and then has the right to foreclose the property if they please.

The tax lien certificate owner, therefore, has bought off the lien of the property from the government, however, they do not have ownership of the property entirely yet. This tax lien certificate owner now has the right to demand the tax debt of the property from the owner including an interest rate that would suit them; they may also set a certain date for expected payment from the property owner.

This arrangement is an opportunity for the tax lien certificate buyer to acquire interest on their initial investment in the lien. However, if the property owner is still unable to pay the demanded amount at the due date, the tax lien certificate owner can now take legal steps required to foreclose the property and also to acquire the ownership title of the property.

This opportunity has provided investors with an avenue to purchase a tax lien certificate as an easy way to make money by charging interest on their initial investment which is the amount paid for the tax lien certificate. Also, in the case of eventual non-payment of the demanded amount by the taxpayer, there won’t be a loss on their initial investment, because they can get the ownership of the property at a much more discounted rate than it would normally be sold at.


My property has been auctioned, what do I do?

Property owners that can pay the tax debts and added interests before a tax lien certificate sale, have it easy. As long as the lien has not been sold to an investor, the property owner just needs to be able to pay up all the required amount demanded by the IRS and they can recover their property back from a tax lien foreclosure.

Additionally, for the property owners that already have had their tax lien bought by an investor from the government, there is also still a way to save your property. This is so because there is always a redemption period given by the investor who buys the tax lien certificate from the state. This period is generally a duration of time granted to the property owner where he/she has the opportunity to pay up the lien placed against the property and any additional charges and interests required.

Depending on the state, the redemption period can vary from months or to a few years over which interests still accrue. Therefore, if the property owner within this period is able to pay up the required amount to settle the tax debt, penalties, and the accrued interests which will be given by the investor, they can get back the property. However, if the redemption period elapses without payment on the part of the property owner, legal action may be taken to hand over the ownership of the property to the lien buyer provided the tax debts have been settled with the state.

Property owners need to be diligent about payment of the taxes due on their property. Also, aged people that need help with handling their taxes should be supported by loved ones in order to prevent a tax lien foreclosure of their properties.

When a notice for a tax lien is given, it is advisable to get in touch with a tax lawyer so as to get legal and professional advice on the options available to you regarding how to get your property back.

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Internet subscribers, users, and online readers are advised not to act upon this information without seeking the service of a professional accountant. Any U.S. federal tax advice contained in this website is not intended to be used for the purpose of avoiding penalties, of any kind, under U.S. federal tax laws.