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Tax liens in Texas: Uncle Sam is not the only player

If you owe a tax debt to the U.S. government, the IRS can assert a claim to your property through a federal tax lien. The lien asserts the government's interest in real estate, bank accounts and other property, until the debt is paid.

The IRS is known as a formidable debt collector. Keep in mind, however, that Uncle Sam isn't the only government entity that can impose a tax lien on your property. State and local governments can do so as well.

Indeed, state and local tax liens have become business in Texas and many other states. Twenty-eight states, including Texas, allow tax liens to be sold to private investors. Three other American jurisdictions - Washington, DC, Puerto Rico and the U.S. Virgin Islands - also allow this.

There is a lot of money at stake. Forbes magazine puts the amount of state and local tax owed on real estate at $426 billion this year. If a property owner doesn't pay the tax assessment on a given property, the government can put a tax lien on the property. And in Texas and the other states that allow it, that lien can then be sold to an investor.

The investors who buy these liens are of course opportunistic. They are motivated by the lure of high returns and not dissuaded by those who liken them to vultures.

At a time of historic low interest rates and a problematic stock market, those returns are significant. According to the National Tax Lien Association, individual investors often earn around four to seven percent on the tax liens they buy. That rate of return is enough to make the market for tax liens a dynamic one.

Source: "Vulture Investing: What You Need To Know Before Bidding For Tax Liens," Forbes, 12-10-12

Our firm handles situations similar to those discussed in this post. To learn more about our practice, please visit our page on IRS liens and levies.

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