3/28/2005
Advice from Nashville's leading Financial Aid Advisor Dave Ramsey
Dave Says
By Dave Ramsey
Author of:
Financial Peace and
The Total Money Makeover
"Any penalties with notice of tax lien?"
Dear Dave,
My father owns a lot in town and recently received a notice that there is a
property tax lien against it. Are any of the penalties associated with this lien
negotiable?
Also, someone was telling me that individuals can actually invest in tax liens.
Is this true?
Louis in Houston, TX
Dear Louis,
The lien is probably not negotiable. I’ve never seen a municipality negotiate
those liens. They have no reason to do so. Someone will be willing to come and
pay that amount – even if your father doesn’t – when the municipality seizes
that land and auctions it off.
With regard to investing in tax liens, in some states it is true that you can
invest in them. This is not the case in Texas, by the way, but in some states
certificates are issued that investors can purchase. Florida is a good example.
If your father had a tax lien on a lot located there, they would issue a
certificate on the tax lien instead of selling the property. An investor can buy
the tax certificate and will become the owner of the property in a year or two
if the tax debtor doesn’t pay off that certificate holder. If the tax debtor
wants to keep the property, they have to pay the certificate holder the amount
owed plus interest – which is where the investing part comes in. In some states,
the interest can be as high as 10-12% on those certificates. I don’t fuss with
that type of investment because the return is just not worth the hassles
associated with them. Trying to make sure you have a clean title to the property
and finding a property that you really want to end up with is like searching for
a needle in a haystack. Most of the interest and questions regarding the subject
of investing in real estate tax liens are generated by some “get rich quick”
real estate guy selling tapes. Can it be done? Yes, but its way too much trouble
for the marginal returns.
-Dave
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