What is a Tax Lien?

By: kenfong

Let us first separate the word ‘tax’ from lien and try to understand what is a lien. A lien is nothing more than a hold on a property that is used to assure the settlement of a debt.

Although this is usually a property, it need not be so. For example if you accept a loan from a bank to purchase a car, the bank has a lien on the vehicle. This lien or hold is like a ‘guarantee’ for the bank and is discharged only when all remaining debt is settled.

The same basis applies to financing a house through a bank. In this case, the lien usually entitles the bank the right to repossess the property if timely payment is not made according to the terms of the agreement.

A tax lien is enforced by law on property to secure the payment of taxes. They may be enforced on real or personal property for non-payment of taxes and/or the failure to pay any type of taxes on the property or even income taxes.

A tax lien on real estate ‘runs’ with the property owner. It means that the new property owner is responsible for paying the taxes even though the tax was sustained by a previous owner.

The rulings on tax lien varies from states to states but the owner of the property may be personally liable for the payment of all unpaid 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 a tax lien on a personal property is not settled within a specified time, the property may be confiscated and sold at a foreclosure sale. This normally happens after several warnings are given and attempts are made to establish contact and/or payment. If a property is sold by the owner prior to tax foreclosure, the tax lien is usually paid as part of closing costs from the sale proceeds.

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 start foreclosure proceedings after a known waiting period. This is known as a tax lien sale.

It goes without saying that it is best to stay current on the payment of taxes on property as this saves time and frustration in dealing with foreclosure actions. It makes sense to check that the property that you plan to acquire is free of a tax lien.

Article Source: http://www.find-affiliate-advice.com

Ken Fong Real Estate Information - More on Vacation Homes

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