Understanding Tax Lien Homes

While you have probably heard of taxes and homes-how about a tax lien home? Whether you are a homeowner or a home-shopper, you should certainly be familiar with such homes.

What is a tax lien?

A lien is simply a way that a lender can use property to settle debts that have not been paid in a reasonable amount of time. So, this usually refers to a government's legal right to impede the use of property when the homeowner owes taxes. The process is somewhat similar to a tax levy. However, a tax "levy" refers to the government's actual seizing of the property. Meanwhile, a tax "lien" involves both the seizing of the property-and then providing a notification about the legal right to seize the property.

What types of taxes can it involve?

It can involve virtually any type of tax owed, including school, income, payroll, sales, city, county, or federal taxes. However, the most common type is a local tax lien. In all of these situations your home becomes collateral until you are able to settle your debt.

What is "Run with the Land"?

When someone "runs with the land" by buying a home with such lien, he or she is responsible for settling the lien. When selling a home that contains a tax lien, it is absolutely, positively important to inform (in writing) the new buyer of the lien. That is because it will be attached to the house until the taxes have been paid. The issue is so important that lenders typically will not supply mortgages on a property until the it has been paid first.

How can you get rid of it?

Tax liens are bad things, and even appear on your credit report. Fortunately, you can get them removed from your house's title. The most obvious way is to pay the taxes you owe. In another case a mortgage company will pay it, and then add an extra fee to your monthly mortgage bill. If you already have equity in your home, you can use it to pay off the lien after selling the house.

How can you avoid buying a tax lien home?

In short, do a Title Search. You should certainly consider hiring a title attorney or title company to handle the search. The attorney or company will conduct a thorough search of legal documents to determine whether or not a lien has been placed on the home. Not only is this search important to avoid buying homes with liens, but you can learn about other "encumbrances" (bad stuff) on the title.

What is Title Insurance?

While most of us would not mind paying cash for a house, few of us can afford to do that. So if you take out a mortgage on a home, you will likely be required to take out Title Insurance. That protects you from issues that you were not aware of when you purchased the home. To help protect you and itself, Title Insurance companies will conduct a rigorous search about the title history of the house.

Here is the bottom line: avoid owning tax lien homes!
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