Tax Lien University

Simply put, a lien is a charge or even a claim that, once recorded correctly, encumbers someone’s property to legally enforce the payment of debts or obligations. The lien must be cleared before a warranty deed can be issued.

When a person borrows money to purchase real estate, the lender attaches a mortgage lien to the real estate. Once the lien has been correctly recorded, it encumbers the property and effectively secures the loan. In the event the borrower fails to pay the debt or mortgage, the lender can seize the property as collateral for the defaulting loan.

Liens against the title are not limited to security for loans such as a mortgage. Liens may be recorded against the property by federal, state, county and municipal agencies. When an individual fails to pay federal income taxes, the IRS may record a lien against the individual and his real estate. In addition, the state can record a lien for delinquent state income taxes. Finally, county and municipal taxing entities may record liens against the property for delinquent real estate taxes.

A lien is a legal instrument that allows an individual or agency to compel payment for services rendered or work performed.

For example: Let’s say you hired a carpenter to renovate your kitchen. After sometime, the carpenter invoices you for the work rendered. But, because of a job lay-off, you are either unable or unwilling to pay the bill.

What can the carpenter do?

The carpenter can record a Mechanic’s Lien against your real estate, effectively compelling payment for the work rendered. When you try to sell your home, the title company cannot issue title insurance until you have cleared the lien (paid the debt). Likewise, a lender would not offer financing to a borrower if the real estate securing the loan is encumbered with a pre-existing or senior lien. If the lender ignored the lien, they would risk a great chance of losing the property to the carpenter.

From a lender’s point of view, the Mechanic’s Lien threatens the lender’s interests in the real estate. Likewise, getting title insurance on a lien-encumbered property is nearly impossible.

Liens are not limited to lenders and contractors. A person, agency or corporation can use another person’s property to compel payment for work performed, services rendered or debts accrued by attaching a lien.

Not all liens are created the same.

Voluntary Lien: Basically, the borrower is voluntarily agreeing to use the property as collateral for the loan. The most common example of a voluntary lien is a mortgage. The borrower voluntarily allows the lien to attach to the real estate.

Involuntary Lien: A lien created by law or legal action without the consent of an owner. Examples include taxes, special assessments, federal income tax liens, judgment liens, mechanics liens and materials liens. Involuntary liens are not created the same. They are either statutory or equitable.

Statutory Lien: A lien that is created by statute. A real estate tax lien, for example, is an involuntary, statutory lien. It is created by statute without any action by the property owner.

Equitable lien: Is a lien, which arises out of common law. It is created by a court action. For example, a court- ordered judgment that requires a debtor to pay the balance on a delinquent charge account would be an involuntary, equitable lien on the debtor’s real estate.

Massive Success,

Steven E. Waters
Creating Wealth Without Risk™
http://www.taxlienuniversity.com/

PS: If you haven’t taken advantage of the FREE AUDIO offer I would suggest doing so NOW. Click here.

A general discussion on the taxation process will help you understand the context from which tax liens and tax deeds originate.

The collection of real estate property taxes is a major priority for local counties and municipalities. Delinquent property taxes create a serious cash-flow problem for local governments. If the county or taxing district is unable to collect property taxes, it is also unable to fund important government services like public schooling, police protection and, in some cases, medical services. Without the revenue generated from real estate property taxes, the county would literally go bankrupt.

Adoption of Budget

The taxation process begins with the adoption of a budget by the county or municipality. The budget outlines the financial requirements for the next fiscal year. The budget includes an estimate of any anticipated expenditures and income for the coming year. Any additional income needed to fund the budget will be raised from real estate property taxes.

Appropriation

Appropriation is the way a county or municipality authorizes the proposed budget, including expenditures and revenue sources. The process begins with the adoption of an ordinance that outlines the specific terms and conditions of the proposed taxation.

Tax Levy and Tax Rate

Through a tax levy, the extra money needed to fund the budget is passed on to local property owners. To do this, the county or municipality must generate a tax rate. To arrive at a tax rate, the total amount of money needed is divided by the total assessments of all real estate located within the taxing district.

For Example: Maricopa County, Arizona determines that $500,000 must be raised from real estate taxes. The Assessor’s Records indicate that there is $10,000,000 in taxable real estate within the county. So, the county computes the tax rate:

$500,000 divided by $10,000,000 = .05 or 5%

The tax rate may be stated in a number of ways. Generally, it is expressed in mills. A mill is 1/1,000 of a dollar, or $ .001. The tax rate may be expressed as a mill-per-dollar ratio, for instance in dollars per hundred or in dollars per thousand. A tax rate of .03 or 3 percent could be expressed as 30 mills or 3/1000ths of assessed value.

The Assessor

The County or Municipal Assessor is responsible for discovering, listing and valuing all property within the county, and must follow state laws when meeting these responsibilities. The assessor’s goal is equalization of property values. Equalization allows the burden of taxes to be distributed fairly and equitably among property owners.

Notice of Valuation

Each year the assessor is required to notify taxpayers of the value of their real property. The notice, or valuation, describes the property, gives the actual value for both the prior and current year, and provides an opportunity to present an objection of the assessor’s valuation.

The deadlines for appealing a valuation are enforced by state statutes.

The “Notice of Value” is not a bill, but a document that contains important information about the property and its value, which is used to determine each homeowner’s real estate tax bill.

It is the assessor’s job to identify and appraise all real estate, both business and personal property, throughout the county or taxing district and then notify the owners of their findings through the “Notice of Value.”

Throughout the year, appraisers who are employees of the Assessor’s Office travel throughout the county gathering property information to determine its value. The results of their efforts are shown on the “Notice of Value.”

Appealing The Tax Assessment

As home values increase, so do property assessments. A higher assessment means owners will pay more in property taxes. If a homeowner feels that the value the assessor has placed on their property is incorrect, they may file an appeal.

Taxpayer

Property owners have specific rights, remedies and responsibilities in the assessment process. As stated earlier, if they disagree with the property value, they can file an appeal with the assessor. In addition, they have the responsibility to provide accurate information to the assessor about any property they own and to participate in budget hearings held by school boards, cities, towns and special districts which levy taxes on their property.

Tax Bill

A property owner’s tax bill is computed by applying the tax rate to the assessed valuation of the property.

Generally, one tax bill that incorporates all real estate taxes levied by the various taxing districts is prepared for each property. In some areas, each taxing body prepares separate bills. Sometimes, the real estate taxing bodies may operate on different budget years so that the taxpayer receives separate bills for various taxes at different times during the year.

For example, if a property is assessed for tax purposes at $90,000, at a tax rate of 3 percent, or 30 mils, the tax
will be $2,700 ($90,000 x .03).

If an equalization factor is used, the computation with an equalization factor of 120 percent will be $3,240:
$90,000 x 1.20 = $108,000, then ($108,000 x .03 = $3,240).

The due dates for payments (also called the penalty dates) are usually set by statute. Taxes may be payable in 2 installments (semiannually), 4 installments (quarterly) or 12 installments (monthly). In some areas, taxes are due at the beginning of the current tax year and must be paid in advance (for example, the year 2000 taxes must be paid at the beginning of 2000). In other areas, taxes are payable during the year after the taxes are levied (2000 taxes are paid throughout 2000). And, in still other areas, a partial payment is due in the year of the tax, with the balance due in the following year (2000 taxes are payable partly during 2000 and partly during 2001).

Some states offer discounts to encourage prompt payment of real estate taxes. Penalties, in the form of monthly interest charges, are added to all taxes that are not paid when due. In addition, the property cannot be sold or refinanced until the tax bill or tax lien has been cleared.

Massive Success,

Steven E. Waters
Creating Wealth Without Risk™

http://www.taxlienuniversity.com/

PS: If you haven’t taken advantage of the FREE AUDIO offer I would suggest doing so NOW. Click here.

Dear Friend-

Chances are, you first learned of tax liens and tax deeds while attending a workshop, watching a cheesy late night infomercial or reading an investment book. Regardless of how you were first introduced to them, I’m guessing you would like to learn more.

Unlike what you may have heard, there are some downsides to investing in tax liens and tax deeds. Most of the time, the producers of seminars and infomercials are only interested in making a sale and collecting a profit. More often than not, they paint a distorted picture that only emphasizes the upsides and neglects the downside, leaving the individual with an inaccurate and incomplete understanding of tax liens and tax deeds.

My purpose in providing this information is to paint an accurate picture of this investment field. Proper education will enable you to make informed, intelligent investment decisions with regard to tax liens and tax deeds.

I’m often asked what it is that makes government-issued tax liens and tax deeds the ideal investment. There are several, but I will only touch on a few of the more prominent ones.

Entry Level. Unlike other investments, when you invest in tax liens and tax deeds it doesn’t take a lot of money to begin making a profit. Regardless of your current financial situation, you can find tax liens and deeds ranging from a couple hundred dollars to several million in cost.

In addition, it usually requires excellent credit to get started as a real estate investor. Credit checks are not required to buy tax liens and tax deeds. Typically, a small deposit, a bidder’s information card and a W-9 is all it takes to get involved.

Usually, to generate serious profits, you have to be in the right place at the right time. Regardless of your location or timing, you can still profit as a tax lien and/or tax deed investor. In fact, the Internet is making it possible for investors to purchase tax liens and tax deeds from the comfort of home.

Finally, unlike the stock market, you don’t need any fancy software to get started. Investing in tax liens and tax deeds is low-tech. Usually, a telephone, an Internet connection and a camera are the main tools you’ll need.

Yields. First and foremost, tax liens and tax deeds are high-yielding. Exactly how high? Depending on state laws and competition, annual yields can range from 10% to 50%. In Arizona, annual returns can be as high as 16% (Sec. 42-18053). In Florida they can be as high as 18% (Sec. 197.172). In Texas, which sells a hybrid tax deed, penalties are as high as 25% every six months for an annualized return of 50% (Sec. 34.21 e 2).

Maybe you’re thinking, “What difference can a few extra percentage points make?” Figure 1.0 demonstrates how long it would take various amounts of money at different interest rates to grow into $1,000,000.

Figure 1.0 demonstrates how long it would take various amounts of money at different interest rates to grow into $1,000,000.

As you can see, a few percentage points can make a dramatic difference in your financial future. Albert Einstein made a very smart observation when he stated, “The most powerful invention of man is compound interest.” With a little discipline, you can have compound interest working for you rather than against you.

Volatility. From September of 2000 the NASDAQ dropped 45.9% to 2,291.86 by January 2, 2001. In October of 2002, the NASDAQ dropped as low as 1,108.49 which is a 78.4% drop from its all-time high of 5,132.52 in March of 2000. Over 8 trillion dollars of wealth were lost during that “down-turn.” As of this writing, many investors, you included, are looking for a relatively safe, yet high-yielding, place to invest. Unlike the stock market, tax liens and tax deeds are free from market risk.

For example, if you were to buy $5,000 of stock it could either rise or fall in value. You simply have no idea what your return will be. On the other hand, if you were to buy a $5,000 tax lien certificate at 18%, your rate is fixed by law.

Security. Another distinguishing characteristic of tax liens is that they are secured by real estate. So, if you do not receive what you paid to purchase the tax lien plus interest and/or penalties, you can take the property. Usually, the foreclosure of a real estate tax lien will extinguish all junior liens including mortgages and deeds of trust. Ultimately, this gives you free and clear ownership of the property.

Commission free. It’s no secret that on Wall Street the highest commissions are paid on products that are hardest to sell and those products are often complex and quite risky. For example, some variable annuities may pay commissions of 10 percent or more, while simple money market funds typically pay .25 percent.

High-commissioned investments can give brokers a strong incentive to persuade investors to buy complex and high-risk products. Yet most investors don’t want to take much risk, if any.

Result: Brokers get higher commissions for selling what their customers want and/or need least. Unfortunately, most investors don’t understand this. Far too often, investors behave as if their broker were their friend instead of a salesperson.

The great thing about tax liens and tax deeds is that you don’t have to worry about brokers misleading, manipulating or taking advantage of you. Since the big financial firms do not get a commission to sell you this investment, they don’t get involved. With tax liens and tax deeds, you are in complete control, ensuring your best interest is at the forefront of every investment choice.

Finally, investors can take comfort in knowing that the government administers tax liens and tax deeds. For the most part, they are impartial and have the best interest of all parties guiding the process. Unlike other more risky investments, investors need not worry about fraud and insider trading.

Massive Success,

http://www.taxlienuniversity.com/

PS: If you haven’t taken advantage of the FREE AUDIO offer I would suggest doing so NOW. Click here.