What Exactly is a Tax Lien Certificate?

A tax lien certificate is something issued by the county when property owners do not pay their property taxes. These tax lien certificates are then usually sold at a public auction, typically held once a year in most counties. Also called tax lien sales, during these auctions interested investors can bid on the tax lien certificates.

If you win a bid on a tax lien certificate, you now have a legal claim to the tax debt. The certificate of purchase records the amount of money due to the investor should the property owner pay off the debt by redeeming the tax lien certificate.

If the owner of the property manages to pay off the debt, then the tax lien certificate holder gets the money they invested back, plus the added interest that has been accrued on the debt. Interest rates range from 8% to as high as 36% in some cases.

If the owner of the property is unable to pay off the debt, the property is forecloses upon, and the holder of the tax lien certificate often has the opportunity to buy the property for only the cost of the taxes, penalties and interest that are due.

The government auctions off the tax lien certificates because it is a way for them to guarantee that they will get the money for the taxes that are owed on a property. Another way they do this is through a deed sale. Different from a tax lien certificate, a deed sale gives the investor complete ownership of the property in question. This does not happen as often as tax lien certificates.

Many people consider tax lien certificate investing to be safe investment, since over 90% of property owners pay off their liens. Still, like any investment, you need to do your research before you jump in. A tax service can sometimes be useful in helping you navigate the world of tax lien certificate investing.