Tax liens: What are they?

If you watch late night television, walk amidst the shelves of the real estate section at your local bookstore, or carefully read the classifieds in your local newspaper, you may have seen the phrase "tax lien."  However, if you are like the average American, you probably have no idea what they are.

In essence, to understand what a tax lien is, you have to think about the nature of real estate and real estate taxes.  Every state and every county throughout the United States levies a property tax on real property (land, and often those things permanently affixed to the land), and the revenue from these taxes is used by the state and county to pay for things such as schools, police departments, fire departments, local roads, libraries, playgrounds, and other similar things.  Without these taxes, states and counties would be unable to operate or provide their services.

Every year, each tax jurisidiction (most often the county) will perform a tax assessment on real property located within the jurisdiction, and then a tax bill to owner of that real property.  The money from when that that tax is paid goes to fund the things mentioned above and helps to keep our communities running nice and smoothly.

At this point you are probably thinking to yourself (especially if you have been watching the news in the past few years), what happens if someone does not pay their taxes?  Well, the answer to that is that if the real property owner does not pay his tax bill by a certain date, the tax jurisdiction (normally the county) will levy a tax lien against that property for the amount of the tax bill.  A tax lien is a type of security interest over the real property which secures the payment of the tax obligation (a simple way to think of it as an interest in the land that the government has - if the person doesn't pay their taxes, they could eventually lose the land!).

By now, you should have a pretty good idea of what a tax lien is. To summarize, a tax lien is a statutory lien (under the law)  that is placed against real property when the owner of that property fails to pay the taxes that he or she owes in a timely manner.

In the next post, we will discuss what counties or states do after a tax lien has been made on a property.  After all, as you may have guessed, the county cannot just take the property and sell it, but at the same time the local government still needs money to carry on its operations.  See if you can guess what they might do, and stay tuned for the next post.