Property Tax Sales: Tax Lien Certificates vs Tax Deeds

Property Tax Sales: Tax Lien Certificates vs Tax Deeds

Every single state has laws that allow local governments to forcibly collect delinquent property taxes on a home. In this article we’ll walk you through:

  1. Two types of Property Tax Sales. the two different ways states go about doing this, 
  2. How to avoid Tax Foreclosure. how a home can be saved from a tax foreclosure and
  3. Investing through Tax Sales. why some investors take a liking to investing in these situations.

Regardless of where you live, when a homeowner fails to pay their property taxes, the government files a prevailing lien against the property. At this point, title on the home is clouded from a sale until it is paid off. With the lien now in place, there’s going to be a series of legally required notices to let the homeowner know things are starting to get serious. After all those notices, the tax authority files a notice of action at the records office and publishes that action in the newspaper.

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Typically what’s being announced to the public is a date for a public auction in which the government is going to get paid their dues. Depending on your state, the winning bidder at that auction will receive one of two things:

  1. Tax Lien Certificate
  2. Tax Deed

Let’s break those down.


1. Tax Lien Certificate Sale

In a Tax Lien Certificate sale, the government is merely selling the lien they’ve placed on the home. The homeowner keeps their property for the time being, but the amount owed is sold to an investor with interest. In 98% of these cases, the property owner pays off the tax lien with added interest to that new investor. If you fail to pay the back the lien amount with interest by a predetermined date, then they are now able to actually foreclose on the property.

2. Tax Deed Sale

Now with a Tax DEED sale, instead of merely selling the lien on the home, they’re just selling the entire home altogether. When investors come to THESE auctions, they’re there to purchase the property itself.

tax lien certificate

How to Avoid Tax Foreclosure

Thankfully, homeowners still typically have a chance to save their home, even AFTER the auction occurs. That’s because of what’s referred to as an “Upset Bidding Period.” After the auction date, there’s a timeframe for other investors to overtake the current winning bid. Until the Upset Bidding Period elapses without a challenging bid, the homeowner can still come forward to redeem the property.

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Investing through Tax Sales.

There’s a lot of opportunity investing in property tax sales. And like everything else, that’s because there’s also a lot of risk involved. Thankfully you can reduce some of those risks by doing some due diligence prior to your tax purchase:

A. Check for Other Liens:

The first thing is to just check for other liens on the home. Thankfully, prior mortgages and other problems get cleared at the foreclosure. However, municipal liens and things like code violations will remain on the property until the new buyer pays to get those cleared as well.

B. Get Property Access:

  1. Another tricky thing is that no one is going to just let you in the how, so you have no clue what the condition of the property actually is. If you can manage to get property access somehow, then you might be able to avoid buying a literal meth lab.

If you are facing tax forclosure

Your next best move is to speak with us.

The Residential Buyer

Whether you’re a real estate investor or a homeowner facing tax foreclosure, the best next move is probably talking to a foreclosure attorney or even real estate investors like ourselves.

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