What Are Government Tax Sale Properties?
In order to pay for a variety of public services, the government levies and collects taxes. Among the many different tax types, property and income taxes generate huge amounts of revenue for the state, municipal and federal government. When tax amounts are not paid, the government must take measures to recoup the lost income. One of those remedies is to sell property acquired by the government.
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Tax Liens
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If an individual who owes taxes has real property assets, like homes, land or buildings, the government can place a tax lien against that property. A tax lien is a legal claim to a monetary amount (in this case, the tax amount owed) represented by a portion of the property value. For example, if a person owes $11,000 in city property taxes, the city can place a tax lien for that amount against his $100,000 home. If he then sells the home, the lien must first be paid before the sale can be closed. If the tax amount is not paid within a reasonable time, then the city (in this case) can legally take possession of the house and sell it at a tax sale in order to satisfy the tax debt.
Tax Lien Auctions
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There are two different categories of tax sales of government-controlled properties. The first is called a tax lien or tax certificate sale. This type of sale does not convey the property itself, but as the name implies, the purchaser will buy the lien against the property. The sale is usually conducted as an auction where investors will bid on the lien. The winning bidder's money pays the government agency the revenue it would have otherwise gotten from the owner of the property. Since it is a true auction, this amount can be higher or lower than the amount owed in taxes.
Investors bid for these liens because the government guarantees that the property owner will either pay the bidder the amount invested plus interest (sometimes 10 to 25 percent) within a defined period of time, or the deed to the property will be transferred to the investor. Additionally, some government agencies will also assess a penalty to be paid to the investor if the property owner wants to clear the investor's lien. In this way investors either get a great return on investment or real estate at substantial discounts.
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Tax Deed Auctions
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The second type of government tax property sale is called a tax deed auction. This type of sale does offer the actual deed to the property for auction. Another key difference between deed auctions and lien auctions is that the government alerts all property owners and lien holders of their intent to sell the property, and they have a certain period of time before the auction to satisfy the tax debt and reclaim the property. Once that period has expired, winning bidders at deed auctions can buy significantly discounted property. Many times, opening bids may start from 60 to 90 percent below the fair market value.
Property Types
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While most often government tax properties being sold are either homes or land, there may be many different types of properties being sold at auction or even direct sale depending on the taxing entity and what government level they belong. For example, liens for municipal property taxes can be filed against business buildings, vacation properties and even time-share properties. Income tax liens can be filed not only against real estate, but also vehicles, boats, jewelery and other property. So, it is important to investigate the county, city, state or federal guidelines concerning the particular tax lien property you wish to acquire.
Government Liens
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No area of the U.S. government is allowed to acquire and maintain property without a purpose. Since the acquisition of tax lien and tax deed property is for the purpose of revenue generation, the government has an obligation to sell the properties as quickly as possible. This is why many investors are enthusiastic about government tax property sales. However, potential investors must be aware that each city, state and federal agency that collects taxes can have different regulations and requirements for obtaining these properties. So it will pay to be well-informed.
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