A tax lien is a lien imposed by law upon a property to secure the payment of taxes. A tax lien may be imposed for delinquent taxes owed on real property or personal property, or as a result of failure to pay income taxes or other taxes.
Unlike personal debts, tax liens on real estate "run with the land", meaning a property owner becomes responsible for payment even if the tax obligation was incurred by a previous owner. Depending on the law of the state or jurisdiction, the owner of the property may also be personally liable for payment of the taxes.
Payment of a tax lien may occur through various methods:
* Payment may be made directly by the property owner or, in many cases, indirectly by the mortgage holder using an escrow account. Notice is given both to the property owner and mortgage holder when a property tax is delinquent. Hence the mortgage holder will receive notice of the delinquency even if the property owner does not have an escrow account on the mortgage, and most often will pay the tax and then demand repayment from the owner/borrower and/or create an escrow account to recoup the proceeds. Doing so is necessary, as a tax lien is superior to a mortgage and the mortgage holder's lien could lose value if the property were foreclosed by the taxing agency to satisfy unpaid taxes.
* If a property is sold by the owner prior to tax foreclosure by the government body, the tax lien (which is generally discovered as part of a title search) is usually paid as part of closing costs from the sale proceeds.
* Procedures vary from state to state. Generally, in the event a tax lien on personal property is not paid within a specified time (and after several notices are generally given), the property may be seized and sold. On real property, one of two methods may be used: either the property may be seized and sold (a tax deed sale), or in some states, the tax lien may be offered to investors (in the form of a tax lien certificate) with an accompanying right for the investor, after a specified period of time, to institute foreclosure proceedings (a tax lien sale).
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Source: wikipedia
