What it is:
A lien sale is theof a by a relevant authority to a third party in an effort to recoup owed.
How it works/Example:
Let’s assume John Doe owns a house in the country and the annual property taxes. Accordingly, the county files a on his property for the unpaid taxes. The lien is represented by a tax lien certificate. A tax lien certificate is written proof that a taxing authority has placed a lien on a piece of property for unpaid property taxes.
When a is placed on a property, the property owner cannot sell or transfer the property until the taxes are paid. And if the taxes are outstanding long enough, the taxing authority can even seize the property and sell it to recover the unpaid taxes.
The taxing authority decides to sell the tax lien certificate. An investor pays the taxes on behalf of the property owner. He does this by attending an auction of public tax liens, and if he is the winning bidder, he receives a tax lien certificate to show that he purchased the tax lien. The price of the tax lien usually equals the amount of the outstanding taxes as well as fees and court costs (and whatever it takes to become the highest bidder).
Why it matters:
Lenders are always anxious to get their , which is why lien sales exist. In our example, to remove the , John has to pay what the investor paid for the plus a set rate of interest (which is what makes tax lien certificates an interesting vehicle). The property owner pays this amount to the taxing authority, which then transfers the money to the holder of the tax lien certificate. If the property owner never pays the and the taxing authority forecloses on the property as a result, the owner of the tax lien certificate (the investor) becomes the owner of the property free and clear.