Tax Liens vs Tax Deeds
Posted on November 22, 2008
Filed Under foreclosure investment training |
Tax sale jargon can be extremely confusing. There are tax lien sales and tax deed sales. As if that wasn’t confusing enough, there are also hybrid sales called redeemable deed sales. Once you understand the differences, you can wade through this goldmine and make huge profits!
Tax liens are simply a lien on the property. From the homeowner’s perspective, you are simply a creditor, much like the mortgage company. Mortgages and liens are in what are called “positions.” The big loan that you got when you bought your house is the first mortgage, and usually has a very low interest rate. If you did an equity line or borrowed additional funds, then you also have a second mortgage. Second mortgages are always at a higher rate than the first mortgage because the lender takes more risk. In the event of foreclosure, the lienholders are paid off in the order of position, which means that the first mortgage holder is paid before the second mortgage holder.
So, what does this have to do with tax liens? The position of tax liens is even higher than mortgages. If the homeowner refinances, the tax lien must be paid. If the homeowner sells, the tax lien must be paid.
If you foreclose on your tax lien and the mortgage company does not pay off your lien, then you could wipe out the mortgage and own the property free and clear! Isn’t that great! On top of that, you are making an interest rate that is much higher (as much as 24%) than what the mortgage company is collecting.
Now that you understand the basics of tax liens, let’s review tax deeds. In the case of the tax deed, the county simply holds the lien for several years and does its own foreclosure. Then, they hold an auction and you buy the property. It’s very similar to a traditional mortgage foreclosure auction.
The third type of tax sale is called a redeemable deed sale. The most notorious redeemable deed state is Texas. In Texas, the investor buys the property at the tax sale, but the homeowner has a specified period of time (six months to two years, depending on the type of property) to buy back, or “redeem” their property. In the meantime, the investor can take possession of the property and even rent it out. In the event of a redemption, the investor gets a very nice 25% annual rate on their investment in Texas.
As you can see, tax liens and deeds vary greatly by state. Before making any kind of investment like this, proper research of state and local regulations is essential. With the proper tools, a massive goldmine awaits.
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3 Responses to “Tax Liens vs Tax Deeds”
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Is there an investor of tax deeds/liens who can teach me everything that they know?
I am 15 but i DESPERATELY want to know all sorts of things about money and investing, particularly tax deeds/liens and real estate! I have a BURNING desire to KNOW!!! I have been interested in things like this for about 2 years, but have very little money there is not much I can do to learn…
Here is a book to get a hold of. The title of the book is: "Profit by Investing in Real Estate Tax Liens" written by Larry B. Loftis, Copyright date is 2007. Any book store can ordered it for you and I am sure Amazon.com will have it as well. If you are interested in making money then Liens are the way to go. Getting deeds means the possibility of getting the property. I lived in Illinois and I went to my first tax sale last Nov. I paid $4,161.00 for one property and placed a lien on someone's house. 50 days later I got all of my money back plus $750 in interest. Not too bad. Next year, I plan to get three liens. It takes money to make money. Get the book and read it. Also, I suggest go and visit your County Treasurer's Office at your local courthouse and ask questions. Just say to them you are working on a school assignment and they will probably help you out. Good Luck.
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Go to Barnes and Nobles and read "the 16% solution" to get an introduction into this.
Tax lien and Deed investing is quite simple but you do need a little bit money to invest. You can buy Tax lien certificate s (TLCs) for as little as a few hundred dollars and make a good interest rate on them. But you also need to do some research to make sure you don't buy junk.
Check out the webpage http://www.secretlandprofit.com. I own it but I am not telling to buy anything. Just go and read the free articles, check out the new but growing community forum, the sign up for the free newsletter about Tax Lien and Tax Deed investing as well as a third method which beats both out.
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