Difference Between Tax Liens and Tax Deeds

By: Brent Crouch
There is no arcane secret to wealth in the realms of the tax lien and tax deed properties. You just need to understand the definitions and processes of the trade. Though the similarities are apparent, there is a difference between tax lien properties and tax deed properties. Which system is employed depends upon the state in question. Presumably, you are all too familiar with the meaning of the word "tax." What, then, differentiates a deed from a lien? Read on for answers.

A lien is an item owned by one party which another party is claiming as security or to repay loans or even another claim. In partnership with the word tax, a lien becomes a claim on a item taken upon failure to pay taxes-in the case of interest to us, a house. The government requires each of us to pay property taxes and if an owner becomes delinquent in this, the government repossesses the house and puts into foreclosure. This is where the knowledgeable investor stands to make a very good profit.

In some states, when a property owner fails to pay taxes, the government puts a lien on the home or lot. This is where the investor-you-put a first position lien on the property. You pay the taxes owed. The owner is given a fixed period of time to repay these taxes. When they do, the government sends you a check reimbursing your investment plus any interest or penalties accrued during the redemption period. So, even if you don't turn a huge profit, you don't lose your investment. Few investing opportunities can boast such low risks.

What Happens if the Owner Can't Redeem the Property?

If the property owner doesn't pay up, and you have first position tax lien on the home, you are now granted the legal authority to foreclose the home before the bank gets a hold of it. You get the entire property for merely the cost of back taxes accrued, which is miniscule in comparison to the market price on the home. It kind of makes you wonder why anyone would ever go through the bank in the first place.

Of course, this doesn't happen all the time-the majority of owners who have liens placed on their homes are able to compensate the government in time. But it is entirely possible to walk away with real estate for as low as a few thousand dollars as a tax lien investor-and in today's economic state, the likelihood of awesome profits is growing. Now is the time to get ahead of the game-with low-risk investment like this, you can create a lifestyle for yourself and your family that you might never have thought achievable beforehand.

The Tax Deed

Now for the basics on tax deeds. As with liens, a tax deed is placed on a property by the government when the owner fails to keep up with the taxes they owe. When you win the bid on a property, you win the tax deed, which states that you now own the home. Once you pay the county, you acquire full legal ownership of the property. With the exception of a few states, you are free and clear once you win the bid and the government voids any tax liens or previous financial issues attached to the property. Be sure to find out whether this is the case in the state you plan to make bids in, as rules do vary when it comes to waiving liens. For example, New Mexico and Arizona do not declare liens null after the purchase of a deed, which could leave the winning bidder with a mess on their hands.

Tax deeds are a great investment-you can make a bid for a mere pittance in comparison to the home or lot's actual market value. There is a plethora of options available in the present market, so don't jump for the first "bargain" that comes your way. Strive to develop your knowledge of the market and to learn to recognize a home with potential.

By now your head must be spinning with the possibilities ahead of you. Whether you're leaning toward tax liens, tax deeds, or both, keep reading and keep learning.

Brent Crouch is the owner of TaxLienProperties.net. He has dedicated this site to providing information on how to purchase tax lien properties for pennies on the dollar. www.taxlienproperties.net