Tax Lien

[Jovan Dinnall]

Can someone explain what exactly a Tax Lien is and how they work, or even the Pros and Cons of using them.

[Ned Carey]

There can be multiple types of tax liens, like IRS liens. Generally most of the time people speak of tax liens here they are referring to Property tax liens. 

When someone goes behind on their taxes, in many states, the county or city, sells a lien against the property. Essentially they are selling the right to become the tax collector. The tax lien holder collects any interest and penalties. Ultimately if the owner does not pay back the taxes (redeem), then the tax lien holder can foreclose and take the property. In that situation mortgages and other liens are wiped out.

It sounds like a win win, either you get high interest or you get a property free and clear. Well it is not quite that easy. They are sold at auctions and the auctions can be very competitive. There are many details that vary from state to state and if you don't know the specific rules it can cost you big time.