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Tax liens have become big business

Adam Smith, the 18th Century economist, has become a capitalist icon in today’s America. It was Smith, after all, who in “The Wealth of Nations” wrote so persuasively about the productive capacity unleashed by humans’ capacity to “truck and barter.”

But what happens when the capacity to “truck and barter” gets applied to tax liens? In Texas and across the nation, tax liens imposed by municipal governments for unpaid property taxes have big business.

Indeed, investment firms are increasingly getting involved in buying and selling property tax liens. The firms have turned the liens into commodities in a dynamic marketplace that features large-scale auctions.

These auctions have increasingly come with multiple concerns. Federal authorities have been investigating, seeking to determine whether bid-rigging at some auctions violated antitrust law. Now aggressive hedge funds are moving into the business, backed by money from Wall Street.

The auctions occur several times a year. Municipalities in more than half the states may be involved. Homeowners who are behind on their property taxes typically still have a certain period on time in which to pay the back taxes on their property — plus interest. But if the property owners are not able to pay, the homes go to the investors.

In short, buying and selling these tax liens has become business of a type Adam Smith would scarcely have imagined. Estimates of its size vary, but it is likely measured in billions of dollars each year. And the returns to investors can be large.

Please visit our page on tax liens.

Source: "The lucrative investment hedge funds don't want you to know about," Fortune, 5-1-13

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