Bennie Smith Jr. was looking for a way to build his wealth quickly when he bid on two property tax liens in Decatur, Illinois.
He bought one on a vacant home in his former neighborhood for about $5,000 and another on a vacant lot for $600. His plan was to take over the properties if their owners did not pay the lien within a designated amount of time. He wound up getting ownership of the first one, and earned about $100 on the vacant lot a couple of weeks after the sale, when the owner paid to redeem it.
A tax lien is placed on a property by a municipality or city when the owner fails to pay real estate taxes, as well as water and sewage bills, in a timely manner.
More than $14 billion in property taxes goes unpaid across the United States and, of the 30 states and District of Columbia that sell tax liens, $4.2 billion of that is sold to private investors, according to the National Tax Lien Association, a nonprofit that represents tax lien investors, governments and servicers.