Tax Lien

A lien on a property is the most usual type of lien but by no means the only type. For example when you take a loan from a bank to finance a car, the bank can put a lien on the car to ‘ensure’ repayment until all remaining payment is made.

The same applies to financing a house through a bank. The lien gives the bank the authority to repossess the house if you are not able to make the installment.

A tax lien is imposed by law on property to assure the payment of taxes. They may be imposed on real or personal property for non-payment of taxes and/or the failure to pay any type of taxes on the property including income taxes.

A tax lien on real estate ‘runs’ with the property owner. It means that the new property owner is accountable for paying the taxes even though the tax was sustained by a previous owner.

The laws on tax lien varies from states to states but the owner of the property may be personally liable for the remittance of all unpaid taxes. This can be made by the property owner or indirectly by the mortgage holder. Plenty of notices are given to ensure that both the owner and the mortgage holder are appraised of the situation.

If a tax lien on a personal property is not settled within a designated time, the property may be confiscated and sold at a foreclosure sale. This usually takes place after several warnings are given and attempts are made to establish contact and/or payment. If a property is sold by the owner prior to tax foreclosure, the tax lien is most often paid as part of closing costs from the sale proceeds.

One of two methods may be used in dealing with the result of foreclosure on a piece of real property. The property may be seized and sold in what is called a tax deed sale. The other method can differ from state to state but the tax lien may be optioned to investors in the form of what is called a tax lien certificate. This accompanies the right for the investor, after a specific period of time has passed, to begin foreclosure proceedings. This is known as a tax lien sale.

It makes good sense to make sure that your property taxes are paid on time to avoid the trouble of dealing with foreclosure proceedings. And it also makes great sense to check that the property that you plan to purchase does not have a tax lien on it unless you are a investor trying to make a huge profit by purposely investing in tax lien.