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What Is A Tax Lien?
By kenfong
Before we can try to understand a tax lien, let us try to appreciate what is a lien? A lien is a sort of claim or hold on an item of asset that assures the settlement of a debt.
Although this is normally a property, it need not be so. For example if you borrow money from a bank to purchase a automobile, the bank has a lien on the vehicle. This lien or hold is like a ‘guarantee’ for the bank and is released only when all outstanding debt is paid.
The same basis applies to financing a property through a mortgage broker. In this case, the lien usually entitles the mortgage broker the right to take back the property if timely payment is not made according to the terms of the agreement.
So what is a tax lien? It is a lien imposed by law on property to secure the settlement of taxes. It is imposed on real or personal property for failure to pay and applies to even income tax.
Unlike personal debts, tax liens on real estate flows with the property owner. It means that the new property owner is responsible for payment of the even though the tax accountability was incurred by a previous owner!
The laws on tax lien deviates from states to states but the owner of the property may be personally responsible for the payment of all outstanding taxes. This can be made by the property owner or indirectly by the mortgage holder. Sufficient notices are given to make
sure that both the owner and the mortgage holder are appraised of the situation.
If the tax lien is not paid within a designated time, the property can be seized and sold at a foreclosure sale. This is normally done after efforts are made to collect the outstanding debts. If a property is sold before tax foreclosure, the tax lien is often included in the sale value.
In dealing with the result of foreclosure on a property, one of two methods may be used. When a property is confiscated and sold it is called a tax deed sale. The tax lien can also be extended to investors, depending on the state, in the form of a tax lien certificate and it allows investors to begin foreclosure proceedings after a designated waiting period. This is known as a tax lien sale.
It makes good sense to make sure that your property are paid on time to avoid the frustration of dealing with foreclosure proceedings. And it also makes great sense to check that the property that you intend to buy does not have a tax lien on it unless you are a investor trying to make a huge profit by intentionally investing in tax lien. Ken FongReal Estate Information - More on Vacation Homes
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