Tax Lien Basics

Comments(5)

• 
  RonaldStarr6th December, 2003

  serena999----------
  
  "Is the lienbuyer responsible for all property taxes while he is holding the tax certificate? " Maybe, maybe not. It is certainly a function of state law, and it may be a function of local interpretation at the county office which sells the liens. You need to read the state statutes on the matter and then talk to the treasurers/tax collectors offices where you would like to invest.
  
  "What happens to the liens on the property once someone buys a tax lien on the property?"
  
  Usually nothing. Again, this might vary depending upon the state laws. Typically the other liens and obligations remains on the property until the certificate is converted to a tax deed. In a couple of states that I know of, Maine and New Mexico the liens remain on the property after the tax deed is issued. It may be so in your state too. You need to check the state statutes on the topic. New Mexico is a deed state, not a lien state.
  
  " Who is responsible for paying off these liens? "
  The property owner until the tax lien is converted to an actual tax deed. After that, probably, nobody. See the above explanation.
  
  "Is the original owner obligated to pay off the tax lien first before paying the other liens on the property before he can get it back?"
  I don't understand the reason to ask this question. The owner at the time of the tax lien auction or some other party of interest in the property has to pay the tax lien before the lien can be removed from the property. There is no requirement that one or the other of the liens has to be paid off first. It i just that the tax lien has to be paid off.
  
  "What happens when the original owner declares bankruptcy?"
  Barnkruptcy stops all actions to collect on obligations of the bankrupt until the bankruptcy case is dismissed or finalized in some other way, I think. The exception is that people holding secured obligations, such as loans and, I would presume, tax liens, can petition the bankruptcy court to release the particular obligation from the control of the bankrumpt court by "lifting of the the automatic stay" against further collection action on that particular obligation.
  
  The tax lien holder could not convert a tax lien to a tax deed without the ending of the bankruptcy action or a relief from state, I would think. This is a legal question, however. And I am not an attorney.
  
  How it might effect the subsequent tax liens on the property, I don't have a clue. Perhaps they could not be issued? Hmmm. Well, even with knowing a lot, sometimes I run into a question for which I don't have an answer.
  
  Good Investing*********Ron Starr************

• 
  serena9997th December, 2003

  Thanks for the info. However, I just thought of something. The lienbuyer is not responsible for paying the existing mortgage while he is holding the lien. However, if he takes possession of the property and there are liens on the property including a mortgage, is he supposed to pay off the liens and mortgage in order to fully take possession of the property?
  
  I am still confused.

• 
  RonaldStarr8th December, 2003

  serena999-----------------
  
  I don't understand this question. What are you thinking when you say "takes possession": of the property? The only state that I know that allows the holder of a tax lien to take possession of the property is Texas. Now Texas is not actually a tax lien state. But when we buy a property on the tax sales in TX, we take the property ownership subject to the right of redemption of the former owner.
  
  Should the former owner or another lienholder not redeem the property during the redemption period the right of redemption expires. Then the buyer at the tax sale has a sheriff's deed which automatically ripens into full ownership of the property, with no more right of redemption. As the tax sale in TX is a judicial foreclosure, all of the other liens should be extinguished from the property, provided they were included in the lawsuit foreclosing the tax lien.
  
  Now, if I am right and the other states do not allow a lienholder to "take possession" of a property, what you are saying does not fit. It does not apply.
  
  One takes over possession of the property only after the tax lien has been converted to a tax deed. That process removes all other obligations off the property except the IRS liens, which have a 120 day right of redemption and you get your money back if they do redeem. Otherwise, their lien evaporates off the property.. So, if there were other obligations against the property at the time that you bought the tax lien, they would not be on the property after the tax deed is obtained. So, there are no obligations left for the new property owner to pay.
  
  Good Investing************Ron Starr***********

• 
  GlennI8th December, 2003

  One clairification to your question about subsequent taxes after you acquire a tax lien:
  
  In Illinois to "protect" your lien (i.e. not make it worthless) you should pay the subsequent taxes until the redemption period has expired. If you do not you "give up your rights" to obtain a deed. Depending on the court and judge you might get some/all of your money back if/when a subsequent tax lien converts to a deed.
  
  There are many procedures to follow in Illinois for tax liens (and I believe most other lien states as well) so I strongly suggest getting familiar with the state statues and rules in this area.
  
  As to owner filing bankruptcy, the lien holder is notified and, as a matter of procedures, usually receives all of their principle and some modified amount of interest for their lien by the court. The terms (redemption period and interest rate) are determined by the court. However, if you do not show up in court, you position can be vacated.
  
  Hope this helps,
  Glenn
  [addsig]

• 
  richen10th December, 2003

  Just want to add a few points to the new comments. First of all, Texas is not the only state where you take possession. you take possession also in Tennessee, and in Louisiana, and in the second year in Missouri. Secondly, the thing about paying the subtaxes, so many people forget that if they own the earlier lien, they can foreclose much earlier than the later lien, and even though they would have to notice the later liens, they may get redeemed, instead of getting foreclosure, and then the later lienholder may redeem and then just get redeemee himself, so it's a risk to him. I suggest that you don' t have to pay the subtaxes if you don't want to, and if you don't gete redeemed in the redemption period, you go to the buyer of the lateer lien andnegotiate a deal with them. you split the profits if you get foreclosure, and you spend less of your money if you don't have the capital to pay for the subtaxes, and you limit your risk, in case you do get redeemed anyway!
  
  RC