A tax lien sale is the sale, conducted by a governmental agency, of tax liens for delinquent taxes on real estate. It is one of two methodologies used by governmental agencies to collect delinquent taxes owed on real estate, the other being the tax deed sale.

In a tax lien sale, the lien (for delinquent taxes, accrued interest, and costs associated with the sale) is offered to prospective investors at public auction. Traditionally, auctions were held in person; however, Internet-based auctions (especially within large counties having numerous liens) have grown in popularity as this method allows for bidders from outside the area to participate.

The investor must wait a specified period of time (referred to as the “redemption period”), during which time the lien (plus interest and any other fees) may be repaid. Usually the lien holder is not permitted during this period to contact the property owner (or anyone else having an interest in the property, such as the mortgage holder) to demand payment or threaten foreclosure, or else the certificate can be forfeit.

Once the redemption period is over, the lien holder may initiate foreclosure proceedings. The proceedings (the costs of which must be paid by the lien holder, though a redeeming property owner may be required to pay them as part of redemption) may result in either acquiring title to the property (normally this will be in the form of a quitclaim deed) or a tax deed sale of the property where the lien holder has the right of first bid (and may participate by making additional bids if s/he so chooses). In Illinois a “Tax Deed” delivers a clean title as the court removes all clouds on title in the order directing the issuance of the deed. During the period between the initiation of proceedings and actual foreclosure, the property owner still has the opportunity to repay the lien with interest plus the costs incurred to foreclose.

The maximum rate of return on a tax lien can be far higher than other investments. For example, Florida offers a maximum rate of 18% (1.5% per month, with a guaranteed 5% return regardless of time held), while Arizona offers a maximum rate of 16%. Iowa offers a guaranteed 2% per month (or 24% annual return).

PLEASE NOTE: As a client of Horizon Trust, Inc., or any other self-directed custodian, it is completely your responsibility to investigate each and every investment that you make. Horizon Trust cannot and does not provide any protection from a poor or improper investment. Make sure you know what you are investing in, with whom you are investing, and what investments may constitute a violation of IRS code with regard to Individual Retirement Accounts.

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