A ‘lien’ is a notice of a claim against a property. A mechanics lien is for work done on a property which has not been paid (for example). A tax lien is a notice that taxes are owed on a property and past due. Liens are recorded at the registry to deeds to alert a prospective lender or buyer that the money is still owed. This generally induces the property owner to pay off all outstanding liens before trying to refinance or sell.
‘Tax sale properties’ is a phrase used to describe real estate that has been foreclosed upon by a municipality for nonpayment of taxes. Municipalities have the right to collect before all other lendors or lienholders. Municipalities set policies for when they will go through this process, first by ‘liening’ a property after a defined period, then entering the ‘tax sale’ process after another defined period. Unless the property owner pays the taxes in time, the property is sold at auction. Proceeds first go to the municipality, then any remaining proceeds go to any lenders and lienholders depending on their place in line (the order or recording of mortgages and liens).
Mlaw (below) is correct about tax liens as an investment; in some cases, the liens themselves are sold as an investment vehicle. Presumably, municipalities find is more expedient to sell the liens than go through the foreclosure process. So they auction them off at a discount. They are a riskier investment than buying the underlying property in a foreclosure. This is because the market value of the property is rather easy to ascertain with comps. On the other hand, the value of a tax lien is highly dependent upon the ability to get the property holder to pay the lien vs the difficulty of foreclosing. Buying a lien which the property owner quickly pays is easy money. Having to foreclose and slog through bankruptcy proceedings may hardly be worth it, depending on how high a price you paid for a lien. Like a treasury bond, tax liens are sold at a discount to face value. A 20% discount means you could make 20% by collecting the lien.
Every year, the various taxing districts adopt a budget and submit it to the assessors office. The assessor then divides the total amount needed to meet the accumulated budgets over the total equalized assessed value of non-exempt property located in those taxing districts. The result is your tax bill for the next year. The respective amount of the assessed tax constitutes a lien on each respective parcel of non-exempt property as of the beginning of the next year (1/1).
Thus, if in 2006, the taxing districts (rd repair, mosquito abatement, city, county, etc) needed $10 million for 2007, and there were 1000 parcels of non exempt property each with an average value of $100,000 (for a total equalized assessed value of $1,000,000,000), then the average tax bill would be $1,000 based upon a rate of 1%.
The assessor would issue the bills in 2007, usually payable in 2 installments of $500. The entire $1,000 would be a lien upon each property until paid in full.
If the tax is not paid in full for 2007. collection proceedings will commence. The tax due will draw interest and perhaps penalty. The parcel owner will be notifed with a last chance to pay the taxes in full plus P and I. If this is not done, the property may be sold at a tax foreclosure sale to the highest bidder. Resultantly, a bidder could conceivably acquire title to a $100,000 property for $1,000 plus Pand I.
Even after the tax foreclosure sale, the original owner still has a period of time to redeem the property by paying tax, Pand I , plus sales costs, etc.
Thus, acquiring title via tax foreclosure is a risky proposition until the period for redemption expires, and even then there may be a lawsuit based on whether the tax was unconstitutional or not, for instance.
Hope this helps.
Comment by michael m — December 17, 2009 @ 4:42 am
A ‘lien’ is a notice of a claim against a property. A mechanics lien is for work done on a property which has not been paid (for example). A tax lien is a notice that taxes are owed on a property and past due. Liens are recorded at the registry to deeds to alert a prospective lender or buyer that the money is still owed. This generally induces the property owner to pay off all outstanding liens before trying to refinance or sell.
‘Tax sale properties’ is a phrase used to describe real estate that has been foreclosed upon by a municipality for nonpayment of taxes. Municipalities have the right to collect before all other lendors or lienholders. Municipalities set policies for when they will go through this process, first by ‘liening’ a property after a defined period, then entering the ‘tax sale’ process after another defined period. Unless the property owner pays the taxes in time, the property is sold at auction. Proceeds first go to the municipality, then any remaining proceeds go to any lenders and lienholders depending on their place in line (the order or recording of mortgages and liens).
Mlaw (below) is correct about tax liens as an investment; in some cases, the liens themselves are sold as an investment vehicle. Presumably, municipalities find is more expedient to sell the liens than go through the foreclosure process. So they auction them off at a discount. They are a riskier investment than buying the underlying property in a foreclosure. This is because the market value of the property is rather easy to ascertain with comps. On the other hand, the value of a tax lien is highly dependent upon the ability to get the property holder to pay the lien vs the difficulty of foreclosing. Buying a lien which the property owner quickly pays is easy money. Having to foreclose and slog through bankruptcy proceedings may hardly be worth it, depending on how high a price you paid for a lien. Like a treasury bond, tax liens are sold at a discount to face value. A 20% discount means you could make 20% by collecting the lien.
Comment by MLaw — December 17, 2009 @ 4:24 am
Every year, the various taxing districts adopt a budget and submit it to the assessors office. The assessor then divides the total amount needed to meet the accumulated budgets over the total equalized assessed value of non-exempt property located in those taxing districts. The result is your tax bill for the next year. The respective amount of the assessed tax constitutes a lien on each respective parcel of non-exempt property as of the beginning of the next year (1/1).
Thus, if in 2006, the taxing districts (rd repair, mosquito abatement, city, county, etc) needed $10 million for 2007, and there were 1000 parcels of non exempt property each with an average value of $100,000 (for a total equalized assessed value of $1,000,000,000), then the average tax bill would be $1,000 based upon a rate of 1%.
The assessor would issue the bills in 2007, usually payable in 2 installments of $500. The entire $1,000 would be a lien upon each property until paid in full.
If the tax is not paid in full for 2007. collection proceedings will commence. The tax due will draw interest and perhaps penalty. The parcel owner will be notifed with a last chance to pay the taxes in full plus P and I. If this is not done, the property may be sold at a tax foreclosure sale to the highest bidder. Resultantly, a bidder could conceivably acquire title to a $100,000 property for $1,000 plus Pand I.
Even after the tax foreclosure sale, the original owner still has a period of time to redeem the property by paying tax, Pand I , plus sales costs, etc.
Thus, acquiring title via tax foreclosure is a risky proposition until the period for redemption expires, and even then there may be a lawsuit based on whether the tax was unconstitutional or not, for instance.
Hope this helps.
Comment by michael m — December 17, 2009 @ 4:42 am