What Is A Tax Lien Certificate, Are They Worth It & How To Get One?

Tax lien certificates are not like stocks, bonds, cryptocurrency, or other investment products that you may know of – but they can reward you handsomely if you make smart investment decisions. When you purchase a this certificate from a local government, you’ll earn interest on the unpaid taxes and have the right to foreclose on the property if the taxes remain unpaid. While investing in tax lien certificates can be profitable, it also carries risks and requires due diligence on the part of the investor. This article will provide an overview of lien tax certificates, how tax lien investing works, and the pros and cons of investing in them.

What Is A Certificate Of Release Of Federal Tax Lien & Why Does It Matter To You?

A certificate of release of federal tax lien indicates the release of a federal tax lien from a property. A federal tax lien is a legal claim that the government has on a taxpayer's property as a result of unpaid federal taxes. The lien can be released once the taxpayer has fulfilled their tax obligations.

The certificate of release of federal tax lien is proof that the lien has been removed from the taxpayer's property, allowing them to sell or transfer ownership of the property without the burden of the lien.

The process of obtaining a certificate of release of a federal tax lien can be complex. The best approach would be to seek the help of a tax professional to ensure proper procedures are followed.

Hopefully, this answers the “What is a tax lien certificate?”

But what if someone can’t fulfill their tax obligations?

That’s where tax lien investing comes into the picture!

How Does Tax Lien Investing Work? Let’s Take A Look!

Tax lien investing in Texas, as with other states, works by purchasing a tax lien certificate that represents a lien against a property. When a homeowner fails to pay their property taxes, the local government can place a lien on the property to recover the unpaid taxes.

Investors can then purchase the tax lien certificate from the local government at an auction, paying the amount of the unpaid taxes (according to the property’s value) plus any fees or interest. The investor then earns interest (as per the given rates) on the tax lien certificate as the homeowner repays their debt.

With real estate tax lien investing, there’s a chance that the homeowner may fail to pay off the debt. If this happens, the investor may be able to foreclose on the property and take ownership.

However, property tax lien investing carries risks, including the possibility that the homeowner may declare bankruptcy and that the property may be in poor condition or have other liens or mortgages against it.

It is important for investors to thoroughly research potential investments and understand the risks involved before investing in tax lien certificates.

Pros and Cons of Tax Lien Certificate Investing

Before you commit to tax lien and tax deed investing, let’s take a look at the pros and cons of tax lien investing:

Pros

• High potential returns: Tax lien investing can offer returns of up to 18-24.
• Low entry barrier: Unlike traditional real estate investments, tax lien certificate investing requires a relatively smaller capital.
• Priority over other liens: Сertificates are given priority over other liens, including mortgages, making them a safer investment.
• Short holding period: Сertificates typically have a holding period of one to three years, thus offering a quicker return on investment.

Cons

• Risk of non-payment: There is always a risk that the property owner will not pay back the taxes.
• Due diligence required: Tax lien investing demands due diligence to ensure that the property is worth the investment.
• Legal complexity: The legal process of tax lien investing can be complex.
• Limited exit options: Once someone purchases a certificate, there are limited exit options.

Overall, is tax lien investing a good idea? Yes – if you make a smart investment decision, as with any other investment!

How Tax Lien Certificates Are Sold – Let’s Find Out!

Wondering “how to buy tax lien certificates?" They are usually sold by local governments in auctions. The exact auction process can vary depending on the state and municipality, but generally, the bidding process begins with the interest rate (set by state law).

The bidding for tax lien certificates starts at the maximum interest rate allowed by law and then goes down from there until a bidder agrees to accept a lower rate of return. Once the bidding is completed, the bidder who accepts the lowest interest rate is awarded the certificate.

Some states also offer online auctions for certificates. In addition, tax lien certificates can also be purchased through private companies that specialize in buying and selling tax liens.

You don’t necessarily have to commit to a tax lien investing course to understand how to get a tax lien certificate.

How To Buy Tax Lien Certificate? A Brief Overview

Buying tax lien certificates involves several steps; make sure you do thorough research before investing. Firstly, you must find out which properties have tax liens attached to them. The local government often publishes these lists.

Next, you must attend the tax lien certificate auction or sale. After winning the bid for it, the investor must wait for the redemption period to expire. If the property owner fails to pay the taxes within the proscribed period, the investor can foreclose on the property and take ownership.

Please keep in mind that certificate investing involves risk and requires due diligence.

Hopefully, by now you understand “how to get a tax lien certificate?”

Is Tax Lien Investing A Good Idea? A Fair Verdict

Now that you understand “what is a certificate of release of federal tax lien,” let’s see: “Is tax lien investing a good idea?” It is an excellent option for investors seeking to earn relatively high returns on their investments.

Certificates allow investors to earn interest on the unpaid taxes of property owners. If the investor has conducted adequate due diligence, tax lien investing can be quite profitable.

However, tax lien investing is not without risks. Investors must do their research, carefully assess the potential risks, and have a sound investment strategy before investing in certificates.

Florida and Texas are both among the best states for tax lien investing – so, what’s holding you back?

How Is Tax Lien Investing Different From Tax Deed Investing?

Tax lien and tax deed investing are two distinct forms of investing in delinquent tax properties. Tax lien investing, as we’ve noted earlier, involves purchasing a lien on a property. The property owner must then pay the investor back the amount owed, plus interest. Otherwise, the investor can obtain ownership of the property.

Tax deed investing, in contrast, involves purchasing the actual deed to a property that has been seized by the government due to unpaid taxes. In this case, the investor immediately becomes the owner of the property and is responsible for any further taxes owed.

Tax lien investing is generally considered the less risky of both options because, in this case, the investor is not immediately responsible for the property.

Tax Liens VS. Mortgage Liens – A Fair Comparison

Again, mortgage liens are different from tax lien certificates. A mortgage lien is placed on a property when the owner takes out a mortgage loan to purchase or refinance the property. The main difference here is that a tax lien takes priority over a mortgage lien – this means that in the event of a foreclosure, the holder of the tax lien certificate will be paid first.

Also, the property owner willingly takes out a mortgage, while tax liens are involuntary.

Bottom Line

Getting your hands on a tax lien sale certificate can be a worthwhile investment for those looking to earn a return on their money. However, the associated risks also demand attention! Make sure that you weigh the risks and benefits before getting started.

Working with a reputable and reliable property tax lien certificate service provider can make the process smoother and more efficient.

CertSimple USA, LLC is here for you if you’re unsure of how to start investing in tax liens. We offer fast turn-around times, live customer support, and a 100% accuracy guarantee with all of our tax work. As a family-owned company, we prioritize flexibility and customer satisfaction.

If you wish to explore tax lien investing, feel free to reach out to CertSimple USA, LLC without delay!