Introduction to Tax Lien Investing
 
 
The 7 Steps
 
 
 
In a series of emails to us Joanna Musa explained what a Tax Lien is and why they are such good investments
 
Read on, and to learn more we strongly advise you visit her site www.taxlienlady.com and study how to become a Tax Lien Investor
 
What Is A Tax Lien?
 
Municipalities cannot meet their budget without collecting property taxes. When property owners don't pay their taxes, the municipality and/or county will let investors bid for the right to pay them. In New Jersey the bidding starts at 18% and the lowest bidder wins the tax lien.
 
In other words, the lowest bidder pays the taxes, gets interest on his or her money, and the municipality/county gets the money that they need to make their budget.
 
Other popular tax lien states that bid down the interest rate on tax liens are Arizona, and Florida.
 
What’s The Difference Between A Tax Deed And A Tax Lien?
 
Not all states sell tax liens.
 
Some states are deed states; in deed states the deed to the property is sold at a tax sale. In states that sell tax liens, however, you are not buying the property. You are paying the taxes and placing a lien on the property for the amount (certificate amount) of the taxes that you paid at the sale, plus the interest that was bid.
 
The property owner has a limited amount of time to pay the holder of the tax lien certificate. This is known as a redemption period. If the lien is not paid, at the end of the redemption period the lien holder has the right to foreclose on the property.
 
Why Are Tax Liens Such A Good Investment?
 
Where else can you make double-digit profit on your money without the risk of the stock market? There is a very good incentive for the delinquent property owner to pay the investor, and that is that if they do not pay in a given time frame (the redemption period), the investor can foreclose on the property.
 
This is the investor's "guarantee" of payment.
 
Lien states have different interest rates, penalties, and redemption periods. In New Jersey the bidding starts at 18%, there are other redemption penalties that may be added in as well, and the redemption period is 2 years.
 
Where is the Best Place for You to Invest in Tax Liens?
 
First of all, where do you live? Where would you not mind owning property if it came to that?
 
How far are you willing to travel? Are you more interested in possibly getting property for pennies on the dollar, or on putting your money in a high yielding investment?
 
How much do you want to make, and how long do you want to keep your money invested?
 
How much money do you want to invest?

Some states sell tax deeds not tax liens and different states have different redemption periods and different interest rates. You have to know the answers to the above questions to narrow down which state you want to invest in.
 
In my case I lived in a lien state with a high rate of interest so I decided to invest there (New Jersey). The down side is that because it has a high rate of interest it is a very competitive state to invest in, and because property values are so high there, it is rare that you get the property.
 
This is good for someone who is more interested in investing their money and less interested in acquiring property for pennies on the dollar. However it is not good if you have a large sum of money that you want to invest because you may have to go to a lot of tax sales to get a few liens.
 
If it is property that you want for a fraction of the market value, then you may want to invest in deeds and not liens. Some states have redeemable deeds. In these states you actually receive the deed to the property, but the previous owner still has redemption rights to the property for a period of time (the redemption period).
 
In these states you have a better chance of getting the property than in lien states and if the property is redeemed you are paid well in the form of penalties, not interest rates, so the rate of return is high even if the deed is redeemed right away.
 
If you live in a state that does not sell tax liens, then consider traveling to an area that you'd like to purchase tax liens in. It could be an area that you like to vacation in. You could write off your next vacation checking out the tax sale in that county and using some of your vacation time to do your due diligence and go to the sale.
 
Where to Start?
 
So how do you begin? First I would call the tax collector and find out:
 
1) When they hold their sale?
2) How many properties do they usually have in their sale?
3) How much competition is there?
4) How is the tax sale run?
5) What do you have to do to bid at the sale?
6) Do they have any leftover properties that didn't sell in their last sale?
 
You might want to stay away from the more popular areas and focus on out of way places. You might have less competition there.
 
Tax Deeds vs. Tax Liens
 
States that sell tax liens are selling the back taxes and penalties on properties that have been delinquent in tax payments, usually for at least a year. In this case, you are not buying the property.
 
You are paying the taxes on the property and recording a lien on the property in anticipation of collecting a high rate of interest on your investment. In the event that the property owner does not pay your lien after a given time period (the redemption period) you either have the right to foreclose on the property or may obtain a deed to the property.
 
The redemption period and foreclosure procedures vary depending upon the state.
 
Each state that sells tax lien certificates has different laws regarding how it is done.
 
The following states sell tax liens:
 
Alabama, Arizona, Colorado, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Mississippi, Missouri, Nebraska, New Hampshire, New Jersey, North Dakota, Oklahoma, Rhode Island, South Dakota, West Virginia, and Wyoming.
 
In the case of states that sell tax deeds, after a property owner is delinquent in paying property taxes for a given amount of time (this varies from state to state), the property is sold at auction to the highest bidder. The successful bidder is issued a deed to the property.
 
The type of deed that is issued is different for each state, but in most instances is a non-warrantee deed. That means that there is no warrantee as to the condition of the property or the title of the property, or that the property even exists!
 
It is even more important to do a thorough job of due diligence for tax deeds than it is for tax liens.
 
The following states sell tax deeds:
 
Alaska, Arkansas, California, Idaho, Kansas, Maine, Minnesota, Nevada, New Mexico, North Carolina, Ohio, Oregon, Pennsylvania, Texas, Utah, Washington, Wisconsin, and Wyoming.
 
Some states sell redeemable deeds.
 
In these states, the successful bidder is issued a deed to the property, but there is a redemption period during which time the delinquent taxpayer can redeem (buy back) the property by paying the amount that was bid plus a prescribed penalty.
 
Redemption times and penalties are different for every state that sells redeemable deeds. After the redemption period is over the winning bidder can obtain clear title to the property.
 
The following states sell redeemable tax deeds:
 
Delaware, Georgia, Hawaii, South Carolina, Tennessee and Texas.
 
The following states have laws that allow for both tax lien and tax deed sales, some counties and/or municipalities may sell liens while others will sell deeds.
 
You'll have to check with each county/municipality in order to find out whether they have tax lien or tax deed sales:
 
Connecticut, Florida, Massachusetts, Michigan, Nebraska, New Hampshire, New York, North Dakota, and Vermont.

For the New England states, don't contact the county clerk; you'll have to check with the tax collector in each municipality to find any tax sale information.
 
We believe you’ll learn a great deal from Joanne Musa and recommend you take the 8-week training courseon how to build your own profitable portfolio of tax liens or tax deeds.
 

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