Government Tax Foreclosures

Government Tax Foreclosures

Definition

Foreclosures that occur because the homeowners of these properties are delinquent in taxes owed to local, state, or federal government. These are claimed if a tax lien is not paid in full.

What are Government Tax Foreclosures?

Government Tax Foreclosures

Government tax foreclosures usually refer to property taxes that have gone unpaid on a home. Typically, when a person gets a mortgage loan on a property, they pay principal, interest, taxes and insurance (PITI) all in their monthly payment. However, sometimes a person chooses not to have an escrow account so that they can pay their taxes and insurance separately. Often, when that big tax bill comes due each year, people find themselves in a nasty predicament of not being able to shell out that kind of money all at once. With the economy and job market fluctuating, this kind of foreclosure property is becoming all too common.

Government tax foreclosures are when municipalities foreclose on the property because of taxes due. The regulations can vary from state to state or even county to county. Some states do tax deed sales while other states use tax liens. No matter what, a person needs to understand that they can lose their property at these foreclosure sales simply because they are behind on their property taxes.

Depending upon the area, you need to find out whether you will be attending a tax lien sale or a tax deed sale. There is a big difference between the two. When you see tax liens for sale, that means that the government is going to give you a tax lien certificate when you pay off the full amount of another person's tax lien. That certificate means that you will get the deed to the property if the owner does not come back to pay the taxes plus a preset interest rate. For instance, if the interest rate in your state is 30%, as it is in Illinois, the homeowner will have to pay you the amount of the tax lien plus 30% interest. If they don't, the title will automatically be handed over to you after a certain stipulated period of time. As you can see, this kind of tax lien investing is very safe and potentially profitable for investors.

During your search for government tax foreclosure listings, you may also find out about tax deed investing. These government tax foreclosure properties are a little bit different from tax lien investing in that you are buying the rights to a property. In fact you are getting the deed free and clear of any other mortgages or liens. These properties typically go for higher price points than tax lien sales. You have to pay for them in cash.

In the end, tax lien sales are typically regarded as a safer investment when looking at government tax foreclosure property. Tax deed sales can give you a greater return on investment, but they are not nearly as safe as a government tax lien sale. Many investors like the idea of not being able to lose money. Tax lien certificates offer that safety because of the interest rates offered.

In addition to local property tax lien foreclosures, a person can also get in trouble on a federal level. This happens when someone fails to pay their income tax. The Internal Revenue Service has the power to record a lien for taxes against a person's property. This Notice of Federal Tax Lien comes about after the IRS sends notices to demand payment. If the person doesn't respond or set up a way to make payment, they can be at risk of having a lien placed against the property.

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How to Come Across Government Tax Foreclosures

In order to find government tax foreclosures that you can buy, you need to know that these property tax foreclosures are typically advertised in the legal newspaper for that county. However, it would obviously take a lot of time to go through all of the public notices in every legal newspaper looking for government foreclosure listings. Instead, you can use ForeclosureDeals.com to search out all of the government tax foreclosures in one easy place. This will save you time and the gas money it would cost to drive around and pick up legal newspapers all over your state.

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How Often Are Tax Foreclosures Held?

Government tax foreclosure sales can be held at different times in different areas. The best thing to do is to check with the office that would handle tax foreclosure properties in your area. They should be able to give you a current schedule for upcoming sales. In addition, you want to find out the rules regarding these government home foreclosures. Some areas require you to pay the full amount up front while others will let you put a down payment and come back within so many hours or days with the rest of the money. A tax foreclosure sale can be quite different from your typical foreclosure auctions. That's why it's very important to understand the guidelines in a particular area.

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What Are My Different Resources?

Your best resource when looking at property tax foreclosure properties is the county courthouse. Most of the information that you'll need prior to the sale will be located in the tax record department. These government tax foreclosure homes have public records associated with them so that you can see what kinds of taxes are due against them.

Normally, you won't need to hire a real estate agent to assist you with government tax foreclosures. This is because they normally are not listed in the MLS services. Instead, they are much like mortgage foreclosure auctions which are done on the courthouse steps in many states. However, you might want to consider hiring an experienced real estate agent to do the background research for you if you are unfamiliar with doing title research at the courthouse. Some agents are willing and able to handle this part of the transaction for you for a set fee.

Because you won't be making a normal offer as you would with any other kind of property, you won't need a real estate agent to fill out forms or submit them to anyone on your behalf. Instead, you will be bidding yourself at a government tax foreclosure auction.

FAQ about Government Tax Foreclosures


  • A government tax foreclosure is a property that has a tax lien from a government agency for failure of the property owner to pay taxes. A lien is an ownership claim or right to receive payment from the value of a property. The federal government, through the IRS, frequently places tax liens on homes if their owners do not pay their income tax as required. State governments and local governments can also levy tax liens, particularly if the homeowner does not pay property taxes for one or more years. These properties are then sold at auction to recoup the taxes that are owed, similar to how a bank places foreclosures in an auction to pay off the remainder of a home loan.

  • Yes, government tax foreclosure auctions are great ways to find cheap properties for pennies on the dollar. Government tax foreclosure auctions exist to auction off homes that were sold as a result of tax debt. This tax debt can be accumulated as a result of a failure to pay income taxes, property taxes, or other taxes. Often, the debt is in the form of a tax lien, and therefore the purchaser of the property merely has to pay for the tax lien itself – meaning an investor can walk away with a property worth far more than what he or she paid for it at auction.

  • Government tax foreclosures are most commonly bought at government tax auctions held all across the country at the federal, state, and local level. County sheriff's sales are the most common form of tax auctions. At these auctions, you can review properties that are being auctioned off due to owed taxes. The purchase process is the same as with a normal foreclosure auction; the winning bidder receives documents that are called tax lien certificates. Typically, owners of the properties being auctioned have the right to pay off any owed taxes before you take possession. If they do not, however, within a certain period of time, you can then take possession of the home as the lawful owner. Note that properties purchased with government tax liens may also have additional liens, such as mortgage liens. You would then be liable for those as well.

  • It is technically possible to find and buy government tax foreclosures for $200 and up – after all, you are purchasing the tax lien on the home and with it the right to take possession in the event that the homeowner does not pay their taxes. In some instances, the tax lien on a home may be extremely cheap, and there may not be much – if any – interest in the property at a government tax foreclosure auction. If this happens, there will not be much competition to bid up the price of the tax lien. However, most government tax foreclosures are sold for much more than $200 because other investors recognize the value and discounts inherent in the property. While it is technically possible to purchase homes for less than pennies on the dollar, it is more likely that you will pay significantly more – although still with considerable discounts from list value.

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