HOW TO TAX LIEN

What is a Tax Lien?

A Tax Lien is the first major step the IRS takes against individuals in order to collect back taxes. A Tax Lien gives the IRS a legal claim to your property as security or payment for your tax debt. It is used in order to protect the government's interest in your assets.


When and Why is a Tax Lien Filed?

If you have unpaid back taxes and have not cooperated with the demands of the IRS to make the payments of the tax amount owed, it is likely that eventually you will receive a tax lien, which will then turn into a tax levy.

Here is how the process works. The IRS will first send you a letter with an assessment of your tax liability. This letter will typically state the amount that is unpaid as well as late payment penalty and interest. If the assessment letter is ignored, the IRS will follow up with four more letters, CP-501, CP-502, CP-503, and CP-504. These letters will get more and more threatening as the numbers get higher. The final one of the CP letters mentions it's intent to levy. After these letters are sent to the taxpayer and there is no response or the tax amount is not paid, the IRS determines that they are not able to collect the tax the conventional way, so the IRS will then file a Notice of Federal Tax Lien (NFTL). Once you receive this tax lien, the lien has already been attached to your property. The purpose of the tax lien is to prevent you from selling or borrowing against any of the major assets that you own. With a tax lien in place, it gives legal claim to the IRS over that piece of property that the lien was placed and removes your rights to the property. Moreover, tax liens are public records.
Effects of a Tax Lien
A tax lien makes it very difficult or impossible to get any credit to make additional large purchases, such as a boat, car, or house. Having a lien placed on you by the IRS can be financially crippling for the time it is in place, it pretty much means you can't hold any assets in your name and you have to rely on other people for financing (as lien is on your credit too). All creditors would be notified including your mortgage company. A tax lien will stay in place as long as the IRS can legally enforce action against you (typically 10 years statute of limitations), or until your tax liabilities have been settled with the IRS. The IRS becomes the highest of priority of creditors, so if you sold your house, car, or whatever property the lien was one and you had other liens on that property, the IRS would be the first to be paid.

If you do nothing about the tax lien, the IRS will eventually begin to seize your assets and sell them at a public or private sale. Once the IRS actually starts seizing your assets to satisfy the back tax liability, this is known as a tax levy. A tax levy is the most lethal weapon that the IRS possesses for collecting taxes.
What To Do About a Tax Lien?
It is best to take action as soon as possible when a lien is put in place. It is not a good idea to try to wait it out until the statute of limitations expires because most likely you will get a levy placed on you before then and the IRS will seize your assets before the statute of limitations expires. In order to release a tax lien you will have to file a tax return or file your back taxes (if you have not), then decide whether you want to pay your back taxes in full or settle your back taxes.

Believe it or not, there is a statue of limitations in place which governs how long you have to claim a tax refund, the time frame in which the IRS can audit a tax return, and how long the IRS has to collect back taxes. While you never want to take a chance with anything related to your taxes, you may find yourself in a position where the statue of limitations works either for or against you.
Claim your Refund in Three Years or Less
Does the IRS owe you a tax refund? If so, you only have three years to claim this money. The statue of limitations begins on the original due date of your return. For instance, your 2006 return was due on April 15 or 2007 which means you have until 2010 to file and receive a refund. If you do not file by April 15, 2010, in this example, your tax refund will expire and you will no longer be able to claim the money.
Three Years to Audit your Tax Return
Unless the IRS is suspicious that you committed tax fraud, the statue of limitations does not allow a return to be audited after three years. Sticking with the example above, the IRS would have three years to audit your 2006 tax return or until April 15, 2010. The moment this day comes and goes the IRS can no longer audit you. The only exception, as noted above, is if they feel you have been committing fraud over the years.

More information on IRS Audits
10 Years to Collect a Tax Liability
According to the statue of limitations, the IRS has 10 years to collect outstanding tax liabilities. The "10 year clock" begins to tick from the day the original liability was finalized. Most commonly this is the result of taxes owed on a tax return, but could include other situations such as debt turned up by an audit. The IRS has 10 years to collect the back taxes, as well as interest and penalties.
What are the chances of the IRS overlooking my situation and not collecting on a tax liability? The answer is simple: not very good. You may get lucky, but remember, the IRS is closely watching what you do. If you owe them money, no matter how much or little, there is close to 100 percent chance that they will collect it within 10 years.
As a taxpayer it is important to be aware of the statue of limitations and how it can affect you.
I went to a tax sale yesterday in an out of the way rural municipality in New Jersey. Unlike most of the tax sales in New Jersey this sale was poorly attended. New Jersey is a very competitive state for tax lien investing so this was an uncommon event.
Most serious bidders arrive an hour before the sale starts. At first, I was pleased to see, with less than an hour to go before the sale, that there was only one other bidder there. Then I did my research on the properties that were left in the sale and I discovered why other investors didn't bother with this sale. Out of the thirteen properties that were left in the sale, there was only one decent property. All of the other properties were vacant land and when I looked on the tax maps and checked with the zoning department (this is why I arrive at the sale an hour early) I found out that none of these properties were build-able lots. Most of them were land locked and none of them were large enough to build on, even though one parcel was a three-acre lot.
Since the other bidder there was a professional bidding for an institutional investor, I decided not to bid on any of the properties in the sale. I knew that if I bid on the one property that had a house on it, the professional bidder would bid high premium for it, so I decided not to bid him down and not to bid on any of the other properties since they wouldn't be profitable. I stayed around to see what would happen at the sale.
About fifteen minutes before the sale three other bidders arrived. These investors were new to tax lien sales and did not really know anything about them. They asked the tax collector a few questions before the sale and indicated that they really weren't there to bid but intended to watch since this was their first sale. When the sale began the tax collector let us know which properties had prior liens. Four of the undesirable properties had prior liens. I was not surprised and this just confirmed my suspicions that these properties were not worth bidding on. If they were, then the prior lien holder would have been there to bid on them, or would have paid the subsequent taxes and prevented them from being included in the tax sale.
The tax collector announced the first property, and seeing that no one was bidding on it, one of the inexperienced bidders could not resist. He bid 18% and was awarded the lien (this was the 3 acre landlocked and undersized lot - you need 5 acres to build here). The next three properties were struck off to the township at 18%. The next property was the only one with a house on it and that went to the institutional buyer at 18%. There were eight properties left. Another one went to the township. The temptation to bid and get a get a lien at 18% was too great for the other two new investors; they bought three liens each, each one at 18% interest. Fortunately for them, they were very small liens.
After the sale, I explained to them that they should check the zoning on properties before they bid on them. The tax collector does not tell you before the property is sold if it is unusable property and that is why the owner did not pay the tax. The tax collector only has to convey that industrial properties may be subject to the Environmental Clean Up Act, the Spill Compensation and Control Act, or the Water Pollution Control Act. And this is usually done in fine print; on the notice of the sale and the bidder information sheet.
When it come to buying tax liens, and this goes for other states as well as New Jersey, it's "buyer beware." As the investor, it is your responsibility to make sure that the property that you are purchasing a tax lien certificate on is a valuable piece of property. Even in states like New Jersey, where real estate is at a premium and has increased in value tremendously over the last five years, there are still tax parcels that are worthless. In many areas of the state, municipalities have been steadily increasing the zoning requirements for all types of properties. In many rural areas you need a few acres in order to build a house.
I know that many of you are under the false assumption that if you are a holder of a tax lien certificate; you are guaranteed to get paid. This is not true; it is a misrepresentation that is fostered by real estate infomercials and high priced seminars. The truth is that no one guarantees that you will be paid. You are first in line to get paid, but there are circumstances in which you might not get paid. You do have the right to foreclose on the property if you don't get paid within the redemption period, but what if the property is worthless? Than you have a worthless piece of property that you have to pay taxes on.
Joanne Musa is a Tax Lien Investing Coach and Consultant who works with investors who want to learn how to buy profitable tax lien certificates and tax deeds. She is the president of Tax Lien Consulting LLC, a consulting firm for tax lien investors. She is the author of the e-books: Tax Lien Investing Secrets and Tax Lien Lady's State Guide to Tax Lien and Tax Deed Investing, available at http://www.taxlienconsulting.com



What are tax liens? In its most basic form, a tax lien is a way to legally guarantee that an individual, business or lender will be paid for a debt, by placing a restriction on the debtor's property, which limits them from transferring its title or using it as collateral to obtain further financing.
Tax Liens may be placed on a type of personal property of real estate. The most common lien today is a mortgage. Other types include: mechanic's liens; attorney's liens and tax liens. Each type sports its own rules and deadlines regarding filing, and may vary widely from state to state or even county to county.
There are two types of liens: the particular lien; and the general lien.
Particular liens arise when a person claims a right to retain property, in respect of money or labor expended on the property in question. This kind of lien may be issued in one of three ways: by express contract; from implied contract as in usage of trade); or by legal arrangement of the two parties (as when a contractor finishes contracted work on the property or goods have been salvaged from the sea).
In contrast, general liens are issued when: an agreement is reached between the two parties; by general usage or trade; or by particular usage or trade.
In addition, most liens are also divided into two main groups: legal and federal liens (which can be enforced by law), and equity liens (which are valid only in a court of equity).
To create a valid lien it is important to ensure that the party it is acquired does indeed hold absolute ownership of the property in question; that the person laying claim on the lien has the right to do so; and that the lien s being placed in direct purpose of an agreement of payment made by the two parties.
Liens may be attached to personal property or real estate for the following reasons:
to pay tax debt - a tax lien
to pay for labor services rendered and/or construction supplies
for mortgages
Liens may only be attached by the party owed the money in the first place. Third party placement is prohibited.
A lien may be waived when the debt is either paid in full, or upon agreement between both parties. When liens go unpaid, the lien holder may require immediate payment, or take possession of the property in accordance with local lien laws and regulations. Liens may also be sold at auction for the price of the lien (regardless of the property's value), to a third-party investor. This is most commonly done with tax liens and mortgages.
Liens are a legal entity that must follow all of the laws and regulations of the local municipality and state government where the property is located.

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Lien Laws Lien Certificate Property Lien Buy Tax Liens Federal Tax Lien Government Tax Liens

Who doesn't want to make a guaranteed quick buck? Those who are savvy enough - and can generate enough initial investment capital - have found the relative safety of buying tax lien certificates an investment that is a relatively easy and fast way to make money.

Unlike house flipping, which requires the investor to front initial purchasing and remodeling costs - not to mention the stress caused by overseeing large renovation projects and the risk of a market slow-down -- tax lien investment may yield less initial profit on some buys, but is a virtually risk-free investment opportunity.
Property Tax Liens are legal judgments placed on a house or parcel of land for failure by the property owner to pay their local and state real estate taxes. A lien prevents the owner from selling the property, and allows the taxing authority to take ownership (repossess), or otherwise sell the property in order to recoup lost tax revenue.
Purchasing Lien Certificates is an easy way to either make a small profit immediately, or a larger one in the near future.
Investing in tax lien certificates is not the same as buying the property outright. When purchasing a lien certificate, the investor is actually paying the outstanding tax bill at auction for the property owner, with the promise of being paid back (with interest), in a timely manner.
If the owner can produce the funds necessary to buy the lean back, the investor has the satisfaction of knowing that he has helped a property owner save his home from foreclosure, while making a small profit on the interest the transaction generates If, however, the property owner fails to pay the certificate owner back within the specified timetable, then the lien certificate owner may take ownership of the property and either sell it at a lien deed auction; make necessary repairs and upgrades and sell it on the open real estate market; or sell it as is to another real estate investor.
Acquiring property in this manner is virtually risk-free considering that most tax lien certificates are purchased for a fraction of the value of he house or land.
There are some things investors of this type should watch out for before buying any tax lien certificate investment:
Be sure the property is indeed worth more than the taxes owed. Although not common, there have been reports of property owners allowing unusable properties to be sold at auction in order to get out from underneath their tax burden. Always inspect the property and check to make sure it is a profitable purchase.
Have Cash On Hand. Most tax lien auctions require the full purchase price at the time of sale - either in cash, or a certified bank draft.
Understand the rules of tax lien certificate sales in your area. While the basic rules are the same, every county and state has their own individual laws regulating the sale of tax liens and the acquisition of property. Research your local laws carefully to fully understand your responsibilities and limitations as the lien holder.
While purchasing tax lien certificate investments can yield a tidy profit for the careful investor, every real estate transaction does hold some risk, and should be carefully considered before making any purchase.


Investing in tax liens is the newest craze of making money real estate.. Buying up delinquent taxpayers property liens can be a wonderful opportunity for investors with little real estate experience, it is virtually a risk-free investment opportunity.
Tax Liens offer investors a chance to either make a small amount of money very quickly by lending delinquent taxpayers the money to pay off their tax debt in the hope of saving their property from foreclosure, for a tidy sum of interest; or the chance to buy decent properties for a fraction of their actual real market worth, and making large sums of money when the property is resold. It's being reported that savvy investors may be making as much as 50-75% on their initial investment within weeks.
Are distressed properties the only ones being offered at tax lien sales? Absolutely not! There are homes and land parcels all over the United States put up for tax lien auctions daily. The range of quality is astounding. While some may be fixer-uppers that have been neglected over the years, by the homeowner's inability to pay for repairs, many more are top-flight homes that have been seized when the property owner fails to pay the taxes due to a job loss, death in the family, divorce, or other reason. Oftentimes, open land parcels are made available because someone inherited it and didn't think it was worth much and failed to pay the taxes.
Care should be taken, however, to research each property carefully before submitting a bid. The odds are there will be no information offered at the time of the sale, so all inspections and reviews need to be taken care of beforehand. There have been reports of buyers purchasing property sight unseen at auction only to discover that the new 3 acre lot they purchased with the hope of building on it sits in the middle of a creek bed, or is landlocked with no way to get to it. Others have anxiously gone to check out their new 4-bedroom home only to find no more than a shack.
Tax Liens are generally offered at auction by the taxing authority in two ways: either as a tax lien certificate; or a tax lien deed.
A tax lien certificate allows the investor to pay off the tax debt for the homeowner, and receive a pre-determined amount of interest when the debt is paid in full during the paying period established at the time of sale.. Although the profit margin may be small on this type of investment, the opportunity to acquire a complete property for pennies on the dollar can be quite profitable in the event the homeowner fails to pay the current debt on time. This type of investment can yield a quick turnaround numbering thousands if the property is in good shape and can be sold relatively quickly on the open real estate market.
Tax Lien Deeds may garner a smaller profit, since the investor is paying for the property upfront, but eliminates any ill-will with the current owner since possession is immediate. Even so, many investors find that they can make quite a bit of money on these types of property if they choose carefully and are patient enough to wait for just the right "gem" to come up at auction.
One important thing to remember when buying tax liens: these investments can not be financed. Cash is needed at the time of sale to complete the transaction. Even so, most investors find their time, trouble and money well worth any risk since profit margins are often so lucrative.




Investing in tax liens is the newest craze of making money real estate.. Buying up delinquent taxpayers property liens can be a wonderful opportunity for investors with little real estate experience, it is virtually a risk-free investment opportunity.
Tax Liens offer investors a chance to either make a small amount of money very quickly by lending delinquent taxpayers the money to pay off their tax debt in the hope of saving their property from foreclosure, for a tidy sum of interest; or the chance to buy decent properties for a fraction of their actual real market worth, and making large sums of money when the property is resold. It's being reported that savvy investors may be making as much as 50-75% on their initial investment within weeks.
Are distressed properties the only ones being offered at tax lien sales? Absolutely not! There are homes and land parcels all over the United States put up for tax lien auctions daily. The range of quality is astounding. While some may be fixer-uppers that have been neglected over the years, by the homeowner's inability to pay for repairs, many more are top-flight homes that have been seized when the property owner fails to pay the taxes due to a job loss, death in the family, divorce, or other reason. Oftentimes, open land parcels are made available because someone inherited it and didn't think it was worth much and failed to pay the taxes.
Care should be taken, however, to research each property carefully before submitting a bid. The odds are there will be no information offered at the time of the sale, so all inspections and reviews need to be taken care of beforehand. There have been reports of buyers purchasing property sight unseen at auction only to discover that the new 3 acre lot they purchased with the hope of building on it sits in the middle of a creek bed, or is landlocked with no way to get to it. Others have anxiously gone to check out their new 4-bedroom home only to find no more than a shack.
Tax Liens are generally offered at auction by the taxing authority in two ways: either as a tax lien certificate; or a tax lien deed.
A tax lien certificate allows the investor to pay off the tax debt for the homeowner, and receive a pre-determined amount of interest when the debt is paid in full during the paying period established at the time of sale.. Although the profit margin may be small on this type of investment, the opportunity to acquire a complete property for pennies on the dollar can be quite profitable in the event the homeowner fails to pay the current debt on time. This type of investment can yield a quick turnaround numbering thousands if the property is in good shape and can be sold relatively quickly on the open real estate market.
Tax Lien Deeds may garner a smaller profit, since the investor is paying for the property upfront, but eliminates any ill-will with the current owner since possession is immediate. Even so, many investors find that they can make quite a bit of money on these types of property if they choose carefully and are patient enough to wait for just the right "gem" to come up at auction.
One important thing to remember when buying tax liens: these investments can not be financed. Cash is needed at the time of sale to complete the transaction. Even so, most investors find their time, trouble and money well worth any risk since profit margins are often so lucrative.


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