Author, Speaker, mentor
Copyright © 2016. All Rights Reserved.
TAX LIEN CERTIFICATES
Most counties receive more than half their income from property taxes. The county establishes a budget and taxes real property to fund the majority of their budget. Each taxpayer receives a notice of taxes due each year. Sometimes a property owner is either unable or unwilling to pay the taxes on time. Delinquent taxes become a lien on the property.
When these taxes aren’t paid on time, there is a shortfall in the county budget. Since the counties need the money right away, the legislatures in over thirty states created a way for the counties to receive the money without waiting for the owner to eventually pay the taxes.
The county has two very special rights: To collect the taxes or seize the property. To give the property owner additional time, and still get their money right away these thirty odd states created an interim step. They created a debt instrument equal to the amount of taxes and authorized the counties to sell these instruments, known as Tax Lien Certificates, to investors.
To make these instruments saleable to investors, the state laws in these states allow the counties to pass their rights on to the investors who purchase these Tax Lien Certificates. The investor now receives the taxes, or they can take ownership to the property.
The states established an instrument rate that must be paid along with the taxes. Different states established different rates. They vary from 8% in Oklahoma to 24% in Iowa. These rates are set by law and cannot go down.
The county collects the money and passes it along to the investor. The investor never has a meeting with the property owner.
This is not a new concept. Some of the original colonies established this procedure. Thomas Jefferson and Benjamin Franklin were investors. But the history of these instruments goes back to Europe before there was a United States of America.