Tax Lien Certificate | Definition

/taks leen sərˈtifəkət/

A tax lien | account | expense | economy | pension | bitcoin | 401(k) | lender | wealth | return | grant | asset | check | fafsa | will | wage | fdic | bank | loan | bond | fund | spac | debt | loan | atm | definitionscertificate is a document that lists the property and the amount owed in taxes on that property which gives the holder of that certificate the right to collect those taxes, plus interest, or foreclose on the property if the taxes go unpaid.

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Did You Know

A tax lien certificate is a public document, meaning anyone can view it. If you have one outstanding, it could have negative impacts on your financials as it could lead to some of your applications being denied. Therefore, ensuring that you have no outstanding taxes is key to ensuring this does not occur.

A tax lien is a way that the government ensures that they get paid. Any unpaid tax debt can result in a tax lien which essentially means the government has the right to your property before you do. But that doesn’t mean they are going to repossess your home and sell it (although they could). Instead, the government usually issues a tax lien certificate. 


A tax lien certificate is a document that lists the property and the amount owed in taxes on that property which gives the holder of that certificate the right to collect those taxes, plus interest, or foreclose on the property if the taxes go unpaid.


Where Do Tax Liens Certificates Come From?


A tax lien is generated anytime someone neglects to pay their taxes through a Notice of Federal Tax Lien issued by the Internal Revenue Service (IRS). By taking this action, IRS informs all credit institutions that a property has a tax lien.


A person who doesn’t pay their property taxes receives a tax lien certificate created by the local or municipal taxing authority. This certificate becomes a public record and gets put into the auction process. If the property owner can pay the unpaid taxes before the auction, that tax lien certificate is no longer for sale. 


The majority of tax liens are settled this way. If not, the tax lien certificate goes up for auction. The investor that buys the certificate pays the government their bid then they have the right to collect the taxes or foreclose on the property if the debt goes unpaid.


gavel on cash

Image Credit: AVN Photo Lab / 


Is a Tax Lien Certificate the Same as a Levy?


No, a levy is when the government takes property and sells it to satisfy a debt. When a tax lien certificate is generated, the owner still owns the property, and they can pay the financial obligation to maintain possession of the property.


Recommended Read: Four Ways to Build Generational Wealth


Where to Find Tax Lien Certificates


Every municipality is different; some post their tax liens online, some in a newspaper, and some in a document you must pay for. Therefore, you must research your local government to find their tax lien certificate list.


How to Invest in Tax Lien Certificates


Tax lien investing requires you to go to the auction to bid on the tax lien certificates. The process for this varies depending on where you live. Usually, you have to pay for your bid within 1-3 business days to take possession of the tax lien certificate, and some auctions even require a deposit to participate. 


It is important to remember that tax liens are not guaranteed money and can lead to loss. Therefore, you must do your due diligence before making tax lien certificate investments.


Recommended Read: How to Invest in Real Estate with $1,000 or Less


Will I Own Real Estate by Investing in Tax Lien Certificates?


While it is possible, it is highly unlikely. The majority of issued tax lien certificates are paid for before the auction takes place, and most tax liens that are auctioned off are paid in full before the home goes into foreclosure. As a result, it is very rare for the owner of a tax lien certificate to take possession of the real estate.


If you are interested in tax liens, remember to research them before investing. If you have a tax lien certificate issued against your home, be sure to pay it off as quickly as possible to avoid interest, fees, and potential foreclosure.


Main Image Credit: AVN Photo Lab /

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