When & How Are Tax Liens Applied?

When property owners are late to pay their real estate taxes, the government will claim a lien on the affiliated property to encourage the property owner to pay their debt. To ensure that the government gets the funds they need for regular operations (schools, road repairs, and other public services), they then offer these liens to investors at public auction. While the government may claim a lien after a property owner is only a few months delinquent in paying taxes, these liens are usually not auctioned until the property owner is at least a year or more delinquent on their back taxes.

Investors purchase the liens for the cost of the back taxes owed and occasionally for more. Once the lien has been transferred from the government to the investor, the interest rate applied to that debt goes up. The property owner will have a set period of time to pay the new total (taxes, interest, and other related fees). If the property owner fails to pay within the arranged time frame, the lien now gives the investor the right to foreclose on the property.

In this way, the purchase of a tax lien may in some cases lead to the acquisition of a tax deed.