When it comes to buying a property at a discounted price, there are two main routes that you can take: a tax lien sale or a foreclosure sale. Both of these methods are popular among investors, but there are some important differences between them that you should be aware of.
A tax lien sale is when the government auctions off a property due to unpaid taxes. The investor with the highest bid gets the first right to purchase the property. The winning bidder pays the taxes owed and is then issued a certificate of lien. This certificate gives the investor a legal right to collect interest on the amount of taxes owed, plus any additional fees. The investor can then collect the amount due from the property owner, or foreclose on the property if the owner fails to pay.
A foreclosure sale is when a lender takes possession of a property due to the owner’s inability to make mortgage payments. The lender then sells the property in order to recoup the money it is owed. The investor who makes the highest bid gets the first right to purchase the property. The investor must then pay the remaining mortgage balance plus any additional fees in order to take possession of the property.
When deciding between a tax lien sale and a foreclosure sale, it is important to consider the risks and rewards associated with each option. A tax lien sale offers a higher potential return on investment, as the investor can collect interest on the amount of taxes owed. However, the investor also takes on the risk that the property owner may never pay the taxes due. A foreclosure sale carries less risk, as the lender has already taken possession of the property and is likely to recoup the money it is owed. However, the return on investment is usually lower due to the lower purchase price.
Ultimately, the decision between a tax lien sale and a foreclosure sale depends on the investor’s risk tolerance and desired return on investment. It is important to do your research and weigh the pros and cons of each option before making a decision.