The tax foreclosure process…
The local government uses this tax lien as leverage to ensure payment of the taxes. The law mandates a time period within which this must happen, before the property may be confiscated and sold. Proceeds of the sale pay the outstanding taxes. This parallels a typical mortgage foreclosure. After a mandated time period, the creditor may foreclose, which involves liquidating the asset through a sale or auction. The proceeds of the auction pay overdue debts plus the costs and expenses associated with the foreclosure action.
The government chooses simply to sell the rights associated with this lien to investors. That way the bureaucrats can avoid the hassle of foreclosure. Investors purchase the rights associated with the lien by purchasing certificates of lien in public auction-highest bid gets the goods. The government gets the needed revenue, the delinquent tax payer has not yet lost the house, and the investor will make a nice return on the money spent to pay the lien.
County governments have been selling tax liens for over 200 years in the United States. Surprisingly, most investors have never heard of them. Think of it: Investors who are aware of these tax liens and pursue them, why would they want hordes of competition?
Tax liens offer an ideal investment for almost anybody. They require small capital outlays, yet experienced investors can acquire lien portfolios worth hundreds of thousands of dollars. Beginners and seasoned investors alike enjoy high yields with low risk.
To sum it all up, tax liens are not about buying and selling land, they are about selling collection accounts tied to the land. The land supplies absolute security. If the debtor fails to pay the debt, the investor simply takes the property-often taking over land worth 10 times what the investor paid for it.