Tax Lien
A government claim against a property for unpaid property taxes — investors can purchase these liens and earn interest.
Definition
A tax lien is a government's legal claim against a property when the owner fails to pay property taxes. In tax lien certificate states, the government sells these liens to investors at public auction — the investor pays the delinquent taxes and receives a certificate that earns interest (typically 8–36% depending on state law) when the owner redeems.
If the property owner doesn't redeem the lien by paying the taxes plus interest within the redemption period (which varies by state — 1–5 years), the lien holder may initiate foreclosure and potentially acquire the property. This is the 'lottery ticket' scenario that gets beginners excited — but most liens are redeemed before foreclosure.
Tax lien investing requires understanding state-specific rules, due diligence on lien position (your lien must be in first position), property research to ensure the underlying property has sufficient value, and patience for redemption periods. It's a passive strategy for most investors who primarily want the interest income, not the real estate.
Related Terms
Tax Deed
A deed issued to the winning bidder at a tax deed sale — transferring ownership of a property seized for unpaid taxes.
Lien
A legal claim against a property that secures payment of a debt or obligation.
Foreclosure
The legal process by which a lender repossesses a property when the borrower defaults on the loan.
Due Diligence
The investigation and verification process buyers conduct before committing to a real estate purchase.
Also in "T"
Title
Legal ownership rights to a property — the bundle of rights that come with owning real estate.
Triple Net Lease (NNN)
A lease where the tenant pays property taxes, insurance, and maintenance costs in addition to rent.
Turnkey Property
A fully renovated, tenant-occupied rental property sold to investors with property management in place.