What Happens When You Buy A Tax Lien?
In some cases, to buy a tax lien you'll buy on a first-come
, first-served basis from the county holding the property. In other cases, you'll buy round-robin style or by lottery. But in most cases, you'll buy a lien by bidding against other bidders at tax sale for a lien against a property. Here's what happens when you buy a tax lien.
First, you'll pay cash for your bid at the tax sale. On nice properties, this will probably be a large amount of money (which is fine, if what you're looking for is to make a nice interest rate). You'll then hold the lien against the property for however long is specified by that state's law. At some point during the redemption period, the owner of the property will likely pay off the taxes and pay the interest on your lien. Then the county will return your bid money plus the interest (usually 12-18%). The owner retains their deed, and the transaction is done.
In other cases, the owner will not be able to pay the taxes, and you will end up with no other choice than to apply for the deed. This is a bad deal. Usually, you will have bid too much to get a bargain deal on the property, and since you can't inspect the property beforehand, there's no way of telling what problems it may have. You'll have to go through the hassle of selling the property, and risk not getting as much money as you paid back. Not only that, but the process of getting the deed once the redemption period is up can be complicated, and almost always requires a lawyer.
If you don't want to own property, there's a much better way to make money from real estate than by owning tax deeds that is virtually risk-free. At that same auction where bidders bid on liens, overages are created. When someone bids more than was owed, that extra money is held for the owners. Some owners come right in to collect, but most don't realize they are entitled to the money, and never come to collect. Eventually, the government gets to keep this money, so they're in no hurry to make sure the owners get their money.
Since these funds aren't governed by state law, they aren't subject to finder's fee limits. That means if you find records of these funds and find their owners, you can legally connect the two for a finder's fee of 30% or more. On an overage of $30,000, which you'll see regularly, that means you'll make $9,000 or more for reconnecting the owners with their funds. These funds aren't advertised on unclaimed funds sites, so they're very hard to find if you don't know what you're looking for, making your service to these former owners extremely valuable.
by: Maggie Dawson
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