Common questions about tax liens
What are tax lien certificates and how are they purchased?
Tax lien certificates, variously known as tax executions, certificates of purchase, and tax sale certificates, are instruments offered for sale by local county and municipal governments as a method of recovering property tax dollars deemed delinquent due to the property owner's failure to satisfy the debt. The issuance of tax certificates to investors is typically done in an auction setting where the successful bidder is determined by the lowest interest rate declared or the highest bid for cash.
What rates of return can an investor expect from tax certificates?
Interest rates vary by the jurisdiction or state where offered. For example, Florida offers a maximum interest rate of 18%, while Alabama offers a fixed rate of 12%. Arizona has an interest ceiling of 16%, while Iowa offers 2% per month on the unpaid balance. Note: It is important to point out that the interest applied to tax certificates is simple interest. Further, in those states where "bid down" auctions are the rule, it is rare to secure tax liens at the maximum rate allowed by statute. This is due to the highly competitive nature of the tax sale process.
What rights accrue to the purchaser of a tax lien certificate?
A tax lien certificate issued by a local city or county governmental entity is usually considered superior to all other liens in existence upon the property with the possible exception of federal government liens such as those imposed by the Internal Revenue Service. Tax certificates DO NOT transfer title or ownership of the property to the investor. Any loss of title to real property for unpaid ad valorem real estate taxes must be initiated through tax deed foreclosure proceedings. This usually requires an additional capital investment by the tax lien purchaser.
How does the novice investor find tax lien investing opportunities?
The easiest method is to start, literally, "in your own backyard." Contact your local tax revenue official responsible for the collection of property taxes. Inquire as to how delinquent taxes are collected. If it is accomplished through the public auction of the unpaid property tax bill, determine when and where these taxes are published for public review. Note: Not every state provides for the public sale of delinquent property taxes. Currently, some 2,500 jurisdictions (cities, townships, counties) sell public tax debt. Public notice requirements provide that property tax sales be advertised for a specified period of time prior to the actual sale. These advertisements will, in most cases, list the owner of the property, legal description, and the amount of delinquent taxes to be sold.
What are the risks associated with investing in tax lien certificates?
Tax certificates are not risk-free investments. Bankruptcy, litigation, and certificates declared invalid due to procedural errors are all factors that may impact any investor's portfolio. There is also the risk that the tax lien will not be redeemed by the property owner.
How does the investor mitigate these risks?
In a word, RESEARCH. Often referred to as due diligence, there is no substitute for quality research of the tax liens under consideration for purchase. The National Tax Lien Association has several member firms which provide these important research services.
Why do investors find tax certificates an attractive investment?
Superior collateral value. Nationally, lien to value ratios range from 3% to 7%. Interest rates supported by state statutes. Market insulation. Because interest rates are determined by state law, tax lien certificates are immune to many of the fluctuations in the financial markets which affect more traditional forms of investment.
What is the National Tax Lien Association?
The NTLA was incorporated in 1997 as a 501 (c) (6) nonprofit business league to represent the specialty interests of U.S. institutional tax lien investors. Each year, anywhere from 3-5 billion dollars in delinquent real estate taxes are offered for public sale. It is important to realize that these monies are earmarked by local governments to fund police and fire protection, the public education of our children, and the myriad of infrastructure demands required for the general citizenry. The investor~members of the National Tax Lien Association are providing these dollars to local governments through their continued participation at tax sales around the country. They really are Investing in America's Communities!
Is membership in the National Tax Lien Association open to anyone?
The NTLA was established to serve as the official "voice of the U.S. tax lien industry". As a national trade association, the NTLA continues to serve the educational, political, and public relations needs of our membership. However, there are Associate Memberships available for professionals, vendors, and others with an interest in the tax lien marketplace. Information on membership dues and benefits is available upon this web site. Interested parties may also contact the offices of the National Tax Lien Association (561) 449-2484.
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National Tax Collector and Treasurer Leadership Forum
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2017 NTLA Annual Conference & Meeting