Lien Position and What it Means

Lien Position and What it Means for You

When an investor bids and wins a tax lien certificate at an auction she is in a very comfortable position. Not only has she found a secured investment paying a substantial interest or penalty, secured by the property itself, but it is a first lien on the property making it an even safer investment. Tax liens are first liens because counties desperately need the money that property taxes provide. These taxes pay for the police and fire departments, road services, libraries and many others. The counties cannot afford to have anything get in the way of getting their money and so reward the investors that are providing such an invaluable service.

The property tax liens, being first (or second) position liens, are even ahead of the bank's mortgages in the order of getting paid off. The only other encumberances that may be ahead of the property tax liens will be either another property tax lien or a weed maintenance fee ( for sanitary purposes ) instituted by the county. Even if the mortgage is 50 or 100 times greater than the property tax lien it does not have precedence over the lien. Because the tax lien holder can foreclose on the lien for non-payment after the redemption period ends, the bank will often pay off the tax liens plus the interest (or penalties) to protect their mortgages.

If, however, the investor does foreclose on the property, she must pay off any second lien property taxes (plus interest or penalties) from subsequent years before concluding the foreclosure. If after this point but before the conclusion of the foreclosure the property owner desires to pay-off the tax liens, he must not only pay-off the first position lien with interest but the second position that the first position lien holder owns as well.

Even bankruptcy will not harm a first position secured lien. In such an event the bankruptcy judge will usually allow the first position secured property tax lien to remain and continue to draw interest. If the property owner files before the court the lienholder may need to file an answer to the court but that is as difficult as it gets. In most cases though, the bankruptcy properties were weeded out before the auction to avoid such problems.

The position of the property tax lien is a powerful tool. It is the position of the lien, combined with the secured nature of the tax certificate that makes this such a wise investment.

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