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Lien Sale Definition and Frequently Asked Questions

What Is a Lien Sale?

lien sale A lien sale is the sale of the claim placed on an asset to satisfy an unpaid debt. The new lien holder does not own the property, just lien.  A lien is the claim, or hold placed on an asset to satisfy an unpaid debt. Typically, lien sales are conducted as public auctions when the lien is on real estate, automobiles, and other personal property. Depending on a particular state’s laws, contractors, subcontractors, and suppliers may put a lien on a piece of property or asset they have worked.  This lien is pending payment for services rendered.

A lien sale is the sale of the claim, or a hold placed on an asset, to satisfy an unpaid debt. Notices for lien sales might be posted online by the overseeing local agency as well as in local newspapers. There are limits to the interest rate amounts that a lien buyer can impose.

What is a lien?

A lien is the legal right of a person or company to hold the property of another person or company.  They can hold said property until a debt owed by the owner of that property has been paid off.  The debt could arise because someone like a roommate, client, tenant, or unknown person abandoned a vehicle on your property.  No storage fees or rent is paid to have the vehicle occupy your property.  Or, a debt can arise when someone does not pay for services performed on a vehicle left in your care.  For example the case of a mechanic who is not paid for repairs or services performed on a vehicle.  Another example is when a tenant or roommate moves out of a property and leaves a vehicle behind.

What is a tax lien?

A tax lien is a legal claim against real property.  It can be for unpaid property taxes, assessments, fees, or other governmental charges, as well as interest due on these taxes and charges.  A lien is created when annual taxes are levied.  If the taxes remain unpaid for one year, a tax lien is delinquent and can be sold by the lien holder.  This includes the annual tax, local assessments, and water rates upon the real estate.

What is the tax lien sale notice? 

The tax lien sale notice is a written notification to the property owner that the lien holder intends to sell the tax lien.  After the lien sale, the authorized third party, who becomes the new lien holder.  The new tax lien holder then has the authority to collect the money that was previously owed.  The new tax lien holder does not own the property, just the tax lien.

How a Lien Sale Works

Buying delinquent tax liens at a sale is becoming an increasingly popular form of investing.  It is similar to purchasing a long-term Certificate of Deposit (CD). However, unlike a CD, tax-liens cannot be sold back to the taxing authority.  They must be held until they are repaid. Redemption of the purchased lien is typically at a given rate of return within a specified time frame. Lien sales for unpaid debts on a property can result in the amount owed increasing further. Usually, the lien debt is initially sold by a local government agency.  The buyer can employ a lien servicing company that may add more fees and interest to the lien. This allows the buyer to see a return on investment as the debtor must now pay the additional costs imposed.

In many instances, several notices of an impending lien sale will be sent to the debtor.  This is before a notice is filed stating the approaching date for the auction. Though a debtor may owe taxes and other fees, there can be exceptions that will shelter their property and other assets from being subject to a lien sale. For example, disabled homeowners, senior citizens, and veterans could receive exemptions. Active duty military personnel might also be eligible for an exemption for lien sales on their property. Each jurisdiction will have its own criteria, the application process, and window of time when the responsible agency must be contacted.

(Source: investopedia.com)

Interest Rate Limits for Lien Sale Owners

There are limits to the interest rate amounts that a lien buyer can impose. Interest rate limits are set at the government level and vary by state. The bidding process is auction style, with the winner being the highest bidder. There is a limit to the maximum interest rate a winning bidder can charge.  Therefore, the amount the buyer pays for the lien is paramount.

As an example, if the maximum interest rate that can be charged for a lien is 12%, it is a good idea to put a limit on your highest bid. The lower the winning bid, the better. Since this is competitive, a buyer wants to limit the risk of not being paid back in a timely fashion. Said simply, paying a 2% premium for the ability to charge up to a 12% interest rate is a lot better than paying a 9% premium.

Owners of property that is subject to a lien sale can have their property removed from such sale by making payment arrangements to bring their outstanding debt up to date. There may be special procedures for different types of lien sales, such as an auction for a vehicle of a certain value. How that is handled can differ from a lien sale for the contents of a self-storage unit if the owner fails to pay their bills to the storage company on time. Notices for lien sales might be posted online by the overseeing local agency or in local newspapers.

(Source: ibid)

Frequently Asked Questions

What is a vehicle lien sale?

A car lien sale is the process where the lien holder notifies all interested parties that a vehicle may be sold if a debt is not paid off by the lien sale date.  On the date of the lien sale, the lien holder sells the vehicle to the highest bidder.  If there are no buyers at the lien sale, the lien holder takes possession of the vehicle.

What is a lienholder?

The person or company who has the legal right to hold the property of another is called a lienholder.  That person or company is said to have a “lien” against the property.

What is a lien sale packet?

It’s a set of required documents that prove that the steps necessary to have a lien sale approved have been carried out. This packet of documents is mailed by us to the lienholder (the person/company requesting the lien sale) to carry out the lien sale of the vehicle in question.

How long does a vehicle lien sale take?

Lien sales for vehicles valued less than $4,000 usually take 35 to 45 days. Lien sales for vehicles valued more than $4,000 or for self-storage facilities can take 90 to 150 days.

What is a Mechanic’s Lien?

Mechanic’s liens are legal documents that essentially reserve the rights of the filer to seek unpaid compensation. They are usually filed by contractors, subcontractors, or suppliers that never received payment for work that they performed or materials that they provided on the property.

Up Next: Day Trading For Beginners – What Is A Day Trader

Day trading can be summarized simply as buying security and quickly selling or closing out the position within a single trading day.  Ideally, a day trader wants to “cash-out” by the end of each day with no open positions to avoid the risk of losses by holding security overnight.  Day trading is not for everyone and carries significant risks. It requires an in-depth understanding of how the markets work and various strategies for profiting in the short term.  Short term profits require a very different approach compared to traditional long term, buy and hold investment strategies.

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