Tax Foreclosures
There are HUGE benefits to investing in tax foreclosures:
- When property owners never pay the amounts due after tax liens on their properties have been recorded, investors with winning bids can in some cases gain full ownership of the properties by paying only the amount due in property taxes.
- There is often a substantial price reduction, often 50-90% below the market value of the properties.
What are Tax Foreclosures?
Aside from paying the monthly mortgage, which would include the principal and the interest, and for homeowners insurance, as may be required by the lender, homeowners are responsible for paying their home's semiannual property tax.
Those who do not pay their property taxes can convert their homes into a tax foreclosure in the same way that inability to make mortgage payments leads to foreclosure.
Government agencies list all available foreclosed properties on Internet listing sites maintained by companies contracted with the government agencies. There are special reductions and incentives for particular groups, including law enforcement officers, teachers, firefighters, emergency medical technicians, nonprofits and local governments.
Neglecting to pay income or property taxes can result in the government recording a tax lien against the title of the property.
What are Tax Liens?
A Notice of Federal Tax Lien is filed against a property after the following:
- The IRS evaluates liability and sends out a Notice of Demand for Payment.
- The taxpayer does not pay the full amount owed to the federal government within 10 days of notification.
To ensure that taxes are paid, properties, act as security that can be relinquished if the property owners do not pay the taxes. The Internal Revenue Service has the capacity to record tax liens against properties as needed.
Once a tax lien is recorded, some states turn the tax lien into a first lien on the property. The property is then sold as a tax lien certificate at auction.
Successful bidders become recipients of government-issued tax lien certificates and can either receive a state-mandated yield from the lien, which must be paid by the delinquent taxpayer to be released, or will receive the title to the property once the appropriate amount of time has passed without the previous property owner paying the late taxes.
Successfully bidding at tax lien auctions offers one of two major benefits:
- Receiving repayment of the tax lien certificate, the amount of taxes owed, plus penalties paid by the delinquent taxpayer, which range from 10 to 24% per year.
- Gaining ownership of a property title at a significantly reduced price from market value. In some cases, the bidder will only have paid amount of property taxes due to receive ownership of the entire property.
Or
Approximately 95% of the time, delinquent taxpayers find a way to pay the amount owed in taxes plus interest/penalties so that they do not lose their properties. This makes tax lien certificate investment a safe one. The investor is either paid the amount spent on the certificate plus interest accrued or receives ownership of the property title because the previous owner did not pay the amount due.
How to purchase Tax Foreclosures:
If you would like to purchase government tax foreclosure properties directly from the IRS, at auctions held to sell properties seized by the IRS for non-payment of taxes, visit http://www.treas.gov/auctions/irs/cat_Real7.htm.
You can also visit county websites for information on tax foreclosure auctions in specific counties.
Remember, purchases must be made in cash and payment generally must be paid in full within an established time period. You may be able to pay within 2 days or may have to pay at the time of the auction.
Also, make sure that you do a good amount of research on the property, area, foreclosure market, and reputation of the county-ordained auction house or website before you make the purchase.