Two Type of Tax Liens


Federal Tax Lien

There are two types of Tax Liens that can be attached to Real Property.  The first type we will discuss is called a Federal Tax Lien.  This type of lien is from the IRS for unpaid personal income taxes and is applied to real property (the house and land) and any personal property (anything not attached to the land, i.e., RV’s, boats, etc.)  The IRS records and files the Federal Tax Lien in the County Clerk and Recorder’s Office in the county the taxpayer resides in.

As an investor, it’s important to know that  if a property is sold while a Federal Tax Lien is in effect, the IRS will be paid out of the sale proceeds before the investor is paid.

The Perfect Property

Let me tell you a story I heard….An investor was looking for an investment property and they found a nice 5 acre parcel with a newer, nice looking modular home on it.  It was a horse property and they had buyers that were looking for just that sort of a property.  They called the realtor and the price was about $30,000 below market value and at first they got excited thinking that they could make a very nice profit.  Their next thought was “Okay, what’s wrong with it?”  They began their research and found out that the IRS had Federal Tax Liens on it for delinquent income taxes for 3 YEARS!!  The sum of those liens came to $80,000!!!!  This wasn’t a bargain anymore!!!

This is a perfect example of why it’s VERY IMPORTANT that you, as an investor, do your research before purchasing real estate!!

Property Tax Lien

This is the type of a Tax Lien that can be very lucrative for an Investor!  Every County has a budget to perform operations in various departments, such as, Sheriff’s Department, Assessor’s Office, Clerk and Recorder’s Office, Road and Bridge Department, School District, etc., and they obtain the funds to perform these operations by assessing a property tax on every property in the County.  A Property Tax Lien is created when a property owner does not pay their property tax.

To make up the deficit in the budget from unpaid property taxes, the County Treasurer schedules to sell the property to pay for the taxes that are owed. With this kind of lien, the formal recording of the tax owed on the property is recorded in the City or County

Treasurer’s Office (not the County Clerk and Recorder’s Office) and Property Tax Liens are scheduled for sale on yearly basis.

The reason this form of investing can be so lucrative is because you can purchase the Property Tax Lien for the property taxes owed.  Once you fulfill all of the state’s requirements regarding the process you must go through before acquiring title to the property, you can then get the property for literally pennies on the dollar and turn around and sell it at market value or hold onto it for a rental income property.  Please note that every state has different requirements for Property Tax Lien sales.  We offer education and training to assist you if you are interested in this type of investing.

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