Government Tax Lien Certificates and Tax Deed Sales
Property Taxes, also known as Real Estate Taxes, are taxes paid to local and state governments based on the value of the property owned. When these taxes are not paid by the owner, they may become delinquent. Once delinquent, the Government agency responsible for collecting property taxes has the authority to force collection on those taxes. This is most commonly referred to as a "tax sale" or "tax auction". Each of the 50 states have their own laws governing the procedure to collect on delinquent taxes. In many cases the local county government is responsible for this process, as property taxes are generally collected for the use or improvement of local communities. TLCinvesting.com provides information on how each state handles delinquent taxes, and how individual investors can benefit from them. There are 2 types of government tax sales used in the United States, which includes most US Territories. Each is discussed in turn below.
Tax Deed Sales
The Tax Deed Sale is an auction held by local governments for tax delinquent property. Usually the minimum bid is the sum of taxes owed, plus any administrative charges and interest on the amount owed. The winning bidder at the Tax Deed Sale is awarded the deed to the property. There may be certain encumbrances on the deed, which you will want to check out before bidding on any property. Some states issue a "temporary deed", such as a Treasurer's deed until a certain time frame elapses, then the investor is issued an "absolute deed." There may also be certain restrictions on possession of the property. Each state is different, that's why it's important to look at each state separately.Tax Lien Certificates
Tax Lien Certificates are usually auctioned in the same fashion as a Tax Deed Sale. Each Tax Lien Certificate has a face value of taxes owed, plus administrative charges and interest. Depending on the laws in that area, the Tax Lien Certificate will either be sold at that amount, or can be bidded up. Tax Lien Certificates may also be bid on by interest rate. The person willing to take the lowest amount of interest on the Tax Lien Certificate is the winning bidder. Once the Tax Lien Certificate is sold, the owner of the property must repay the amount of the lien plus interest charges, usually 16-18%, back to the owner of the Tax Lien Certificate. Failure to do so within a set redemption period time can result in the owner of the Tax Lien Certificate foreclosing on the lien and potentially being awarded a deed to the property. So basically, with Tax Lien Certificates, you are making the property tax payment for the property owner. In return, the certificates yield a high percentage of interest to you the investor, and the possibility of a deed to that property.
Tax Lien Certificates and Tax Deed Sales by State
Each state uses either Tax Lien Certificates or Tax Deed Sales when collecting on delinquent property taxes. See how your state handles delinquent property taxes below:
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