Home tax liens are serious, as they can cost an individual their house. The liens, which are a somewhat popular investment automobile, can end up with people being foreclosed on and evicted from their home for as little as a few hundred dollars. Source for this article: Tax Aliens


NCLC finds tax liens getting property owners badly foreclosed on


It is fairly obvious to know that not paying your mortgage will lead to foreclosure. What you most likely did not know is that not paying property taxes and not paying homeowner association charges can also lead to foreclosure. Make sure you are always paying any financial burdens associated with owning a home so you can avoid severe consequences such as foreclosure.


When a homeowner falls behind on property taxes, according to the Huffington Post, a tax lien could be filed against the property by the local government and, if unpaid for long enough, the home can be foreclosed on. It doesn't even take much; a recent report by the National Consumer Law Center found some people are being evicted from their houses, regardless of being current on mortgage loans, for owing as little as $400. Subprime borrowers, specifically minorities and the elderly, are at the highest risk.


Investment typically


Part of the issue is that many tax liens are sold to investors, some of whom will foreclose on the house. For properties with taxes in arrears, according to Fox Business, local governments will hold tax lien auctions. Bidders compete by pledging to collect the taxes for the lowest rate or to pay the most for the rights to the home win the right to the lien. Tax liens, according to Bloomberg, had attracted numerous investors, including some very large institutional investors such as JPMorgan Chase, but many have since exited.


Only 28 states and Washington D.C. actually auction tax liens like that; not all of them are interested in it, according to Bloomberg. It might be a fantastic idea to purchase a tax lien on a home in an affluent area because the bank will pay you off the majority of the time. It is not worth it on distressed houses usually and cannot get you wealthy quick.


Steep discount rates


Each state varies in how it treats tax liens. Some tax lien investors, once they have foreclosed on the residents, are able to get properties from the rightful owners for pennies on the dollar as some states, according to the Huffington Post, only allow properties to be sold for the amount of back taxes owed.


It seems nearly impossible to determine how many homes are sold this way. It is estimated by Trace Platform to be between $7 and $10 billion in yearly sales, according to Bloomberg, but JPMorgan estimated only $5 billion in liens were sold in 2008. The NCLC believes there is a higher number since in 2008, Florida sold $2 billion in liens alone.


Sources


Huffington Post

Fox Business

Bloomberg