A tax lien certificate is a legal document that allows an investor to collect on unpaid tax debt on a piece of real estate property. It may also allow the investor to collect on other types of penalties and fees related to property tax debt. Tax liens are imposed by a local or state government in the event that a property owner defaults on tax payments.

The tax lien certificate basically provides lien holder with legal authority to collect on the tax debt, although the property owner must usually be given some time to repay the debt. This is often called the "redemption period." In many cases, a tax lien may sometimes lead to the lien holder foreclosing on the property, and assuming ownership of the property itself.

How Is a Tax Lien Certificate Obtained?

Property taxes are the domain of government bodies, which means tax liens are generally obtained through government proceedings. These are known as tax lien sales or tax lien auctions. During these proceedings, investors can place bids in order to obtain a tax lien certificate.

Advantages of Tax Lien Certificates

  1. Tax liens are generally seen as a form of investment, and a favorable one at that. This is due to the fact that property tax interest rates are fixed and generally mandatory according to law. Due to these mandated interest rates, investors can expect to obtain favorable returns on their purchase of a tax lien certificate.
  2. Tax lien certificates generally will take precedence over other types of documents such as mortgages.

Disadvantages of Tax Lien Certificates

  1. The purchaser of a tax lien certificate must usually purchase them at full cost from the government, in one payment or in payments spread out over a very short period of time, typically 1 -3 days.
  2. There is little to no second market for tax liens, which means that the original lien holder may not be able to see the tax lien certificate for a profit.

Are There Any Disputes over Tax Lien Certificates?

Common disputes over tax lien certificates may involve errors committed by the government when calculating tax debt rates, or tax or document fraud perpetrated by the investor or other parties.

Do I Need a Lawyer for Help with a Tax Lien Certificate?

Tax lien certificates can be powerful investment tools that can yield a high rate of return. However, they are complicated instruments that generally require the assistance of a lawyer. You may need to hire a qualified real estate lawyer in your area if you need help obtaining a tax lien certificate. Your attorney can advise you on how to proceed, and can also represent you in court if you need to file a lawsuit regarding a tax lien.