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  • Nick Burgess

What Is A Lien Sale? Definition and Questions Answered

The following article is for entertainment and educational purposes only, and should not be considered financial advice. Please contact a licensed financial advisor for individualized advice. Some links below may be affiliate links that generate a small commission for the site at no added cost to you.

 

What Is A Lien Sale?

Today, we're pulling back the curtain on an often overlooked part of personal finance and property investment: lien sales. You might be asking, what exactly is a lien sale? Buckle up, because this ride might get a little bumpy.

a sticky note that reads "pay debt" sitting on a table.

A lien sale is the process where property—think real property like homes or personal property like vehicles—are sold because of unpaid debts. Imagine you're a property owner, and you've been dodging your real estate taxes. The treasurer's office might not appreciate your lack of payments. They may place a property tax lien on your property for unpaid taxes. This legal claim is their way of saying, "Pay up, or we're going to start the lien sale process."


Every year, usually in late October, local governments hold their annual tax lien sale to recover delinquent taxes. This public sale isn't some exclusive, behind-the-curtain affair. It's open to the general public, and interested parties can become potential bidders. The treasure trove here could range from mobile homes to lien sale vehicles.

How Do Lien Sales Work?

Now, how does this work? The registration process starts a few weeks before the day of sale. Make sure you're on the ball and have sufficient funds available, because all winning bids are expected to be paid on the time of sale. Most treasurer's offices accept a range of payment methods like debit cards. They're not picky as long as you have the dough.

Tax lien certificates are put up for auction at the public auction, and the bidding starts at the amount of taxes due. But this isn't a regular auction. In a twist, the highest bidder isn't the one offering the highest amount of money, but rather the one willing to accept the lowest interest rate on their investment. Think of it as an inverted bidding war. If you’re the high bidder and have the winning bid, you become the tax lien holder and are issued a tax lien certificate of purchase.

Winning a Lien Sale

As the successful bidder, you're not immediately the legal owner of the property. Instead, you're holding a certificate that earns interest at a rate you bid, based on the federal discount rate. You're not purchasing the property; you're buying the tax lien, essentially a loan against the unpaid property taxes. This provides an element of risk but also a chance for a high rate of return.

The original property owner doesn't lose their property right away. They have a chance to settle their unpaid debts and stop the process in its tracks. This typically involves creating a payment plan with the treasurer’s office. But, if they fail to pay by the date of the sale next year, they'll get a notice of sale, usually by certified mail. If the owner still doesn't square up, the tax lien certificate holder can apply for a treasurer's deed.


Now, not all lien sales are about unpaid taxes. Some involve vehicles. If a vehicle owner fails to pay for repairs or storage fees, the body shop might hold a mechanics lien sale. If you’re the successful bidder at such a sale, you could end up with the right of possession of the vehicle. But beware of hidden costs. You might be responsible for storage rates, certificate fees, and the registered owner or the legal owner like a car loan company, may still have a legal right to redeem the vehicle within a specific period defined by the state statute.

I'd like to interject here with a bit of legal advice, albeit a non-lawyerly one. Always do your due diligence. Check the vehicle identification number, look into the legal claim, and know the lien sale date. If you’re looking at an internet auction, understand the operation of the auction, and don't forget about additional fees.


And folks, let's not forget about the Drug Enforcement Administration and the Resolution Trust Corporation, both of whom have been known to conduct lien sales. These sales may involve properties seized in criminal activities or held by failed banks. These can be risky, but with risk comes the potential for high rewards.

The Lien Release

This brings us to the final step of our journey: the lien release. After a lien sale, once all the dust has settled, the successful bidder receives an original certificate or a treasurer's deed, depending on the type of lien sale. With it, the winning bidder can now assert their rights, whether it’s possession of a vehicle or the path to become a property owner.

Lien sales, whether they're storage lien sales or sales for the purchase of tax sale liens of properties, are a complex, fascinating part of personal finance. The process, governed by everything from the civil code to the California Department of Motor Vehicles, offers an intriguing blend of investment, risk, and reward.

Of course, the IRS is never far behind in these matters. If you are a successful bidder at a tax lien sale, remember to complete and return your IRS W-9 forms. They will want to keep tabs on you.

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