Tax Lien
What it is:
A tax lien is a claim placed on a piece of real estate by a tax authority due to a taxpayer's failure to pay taxes.
How it works (Example):
When a taxpayer fails to pay either income taxes or property taxes, the taxing authority to whom the debt is owed may place a lien against the taxpayers property to ensure that the tax liability will eventually get paid. A property with a tax lien cannot be sold by the owner, which prevents the owner from walking away from the tax liability.
Why it Matters:
Tax liens are highly effective for tax enforcement since the property holder can not sell a property that has a lien on it. The taxing authority will keep a lien on the property until the tax liability is paid.
Tax liens can be purchased by investors as an investment. Such investments are considered solid since they are tied to a hard asset.
