What is a Tax Lien Foreclosure?

A tax lien foreclosure occurs when a taxing authority seizes a piece of property after the property owner has failed to pay property taxes due.

How Does a Tax Lien Foreclosure Work?

Let's assume that John owns a house in the country and the annual property taxes are $4,000. John has fallen on hard times, and he's been unable to pay his property taxes. Accordingly, the county files a lien on his property for the unpaid taxes. The lien is represented by a tax lien certificate.

When a tax lien 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 via a tax lien foreclosure and sell it to recover the unpaid taxes.

Why Does a Tax Lien Foreclosure Matter?

Taxing authorities are always anxious to get their money. That's why they're often willing to sell tax lien certificates (sometimes called tax deeds) to other people. Tax lien certificates accrue interest at a set rate, making them an interesting investment for certain people. Such investments are considered solid since they are tied to a hard asset (i.e. real estate).

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

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