### What is a tax lien? - [x] An encumbrance placed against a property for unpaid property taxes - [ ] A loan provided by a bank for property purchases - [ ] A type of mortgage with adjustable rates - [ ] An insurance for property damage > **Explanation:** A tax lien is an encumbrance placed against a property due to unpaid property taxes. This must be paid off by the property owner before the property can be sold. ### What must be done before selling a property with a tax lien? - [x] The tax lien must be paid in full by the seller - [ ] The property must be appraised - [ ] The buyer must take out a new mortgage - [ ] The homeowner must refinance their loan > **Explanation:** Before a property with a tax lien can be sold, the lien must be paid in full by the seller. This ensures that there are no unpaid property taxes affecting the transaction. ### What risk does a borrower face if they owe back property taxes? - [x] Mortgage foreclosure - [ ] Increase in property value - [ ] Gain in equity - [ ] Adverse credit but no foreclosure risk > **Explanation:** If borrowers owe back property taxes, they are at risk of eventual mortgage foreclosure if the tax lien is not satisfied within a set period determined by the taxing agency. ### What right does the taxing authority have if tax lien is not paid? - [x] The right to sell the home at an auction - [ ] The right to transfer the tax lien to another property - [ ] The right to increase the property's market value - [ ] The right to permanently own the property > **Explanation:** The taxing authority has the right to sell the home at an auction if the tax lien is not paid. This auction allows an investor to pay off the tax lien, interest, and penalties. ### What happens if an investor purchases a property with a tax lien at auction? - [x] They are able to purchase the home without having to pay off the mortgage - [ ] They must pay off the mortgage in addition to the tax lien - [ ] They obtain the property for free - [ ] They only gain partial ownership of the property > **Explanation:** If an investor purchases a property with a tax lien at auction, they can buy the home without having to pay off the existing mortgage, often getting the property for much less than its market value. ### Why are properties with tax liens often sold at a fraction of their actual value? - [x] Investors are only required to pay the outstanding tax lien, interest, and penalties - [ ] The property is typically in poor condition - [ ] The market value of such properties is always low - [ ] The sellers are desperate to sell quickly > **Explanation:** Properties with tax liens are often sold at a fraction of their actual value because investors only need to pay the outstanding tax lien, interest, and penalties instead of the mortgage. ### Can a tax lien be applied to property acquired during the lien's life? - [x] Yes, it applies during the entire life of the tax lien - [ ] No, it only applies to the original property - [ ] Yes, but only with the property owner's consent - [ ] No, it expires after a year > **Explanation:** Tax lien applies to any property acquired during its entire life, not just the originally encumbered property. ### What must happen if a homeowner wants to refinance their home under a tax lien? - [x] The tax lien must be paid off - [ ] An additional tax payment must be made - [ ] The existing mortgage must be paid in full - [ ] The lien must be transferred to a new property > **Explanation:** Homeowners wanting to refinance their property with a tax lien must first pay off the lien to clear the encumbrance. ### What is an effect of having a tax lien on a property? - [x] It prevents the sale until the lien is cleared - [ ] It increases the home's equity - [ ] It reduces the home insurance premiums - [ ] It leads to a permanent decrease in property taxes > **Explanation:** An effect of having a tax lien on a property is that it prevents the completion of property sale transactions until the lien is cleared. ### How can investors benefit from purchasing properties with tax liens? - [x] They purchase properties at significantly reduced prices - [ ] They automatically get property tax deductions - [ ] They are exempt from paying state taxes for a year - [ ] They gain immediate ownership without paying any dues > **Explanation:** Investors can benefit from purchasing properties with tax liens by acquiring properties at reduced prices, often much lower than market value.