Tax Lien Auctions - Your Quick Guide

In every U.S. county there are homeowners who do not pay their required property tax. That often presents an opportunity for the informed investor.

The property is the security for property tax payments.  When the tax is delinquent the county government is required to find a way to collect what is owed.  After all, that is the money that supports all local government services.  At such a time they become a delinquent taxpayer and the appropriate governing authority is in charge for collecting property taxes.

When property taxes arent' paid the local taxing authority places a tax line on the property. 

Tax Lien Auctions

A Tax Lien auction is a court-ordered auction. Depending upon the state and the nature of sale it can be an auction for tax deed or tax lien certificates.

Tax Deed

In case of an auction for the tax deed, the property is sold buy open bidding.  The cash collected from the bid is used to satisfy the  delinquent taxes.

Tax Lien

An auction of the tax lien certificate involves offering a certificate for a cash amount that will cover total sum of taxes owed and any administrative charges, plus interest on the amount owed.

If you purchase a tax lien certificate, you are required to make the payment against the required property taxes for the delinquent taxpayer.

In return, the delinquent taxpayer is required to rembruse you for the amount of the lien plus interest charges.  Interest is usually in 16-18% range.

Tax Lien Benefits

This procedure has two benefits for an investor:

1. A higher than normal rate of return on your investment.

2. The possibility of acquiring ownership of the property if the delinquent taxpayer fails to pay.

If the owner does not pay a court-appointed referee offers the property at auction. At the beginning of the auction, the referee announces the terms of the sale and the required deposit to bid at the auction. The deposit is Usually 10% of the tax due in the form of a certified check payable to the referee.

There are a few traps that those investing in real estate tax liens must be aware of.  I explain that in my free guide to tax liens.

Property Sold "As Is"

Remember, the properties sold in these auctions are sold "AS IS, WHERE IS, WITH ALL FAULTS."

Even if a property is facing a tax lien foreclosure, you do not have the right to enter the property for an inspection. You are required to place your bid even though the property's condition may be suspect. 

You are limited to a drive-by inspection, although sometimes you can walk around a vacant property and look in windows.

When a home owner realizes they are going to lose their home maintainance will be the last thing on their mind.  Because of that you can count on the house needing at least some repair.  Plan for that as you determine the maximum amount you can bid at the auction.

Real estate tax liens offer exciting profit opportunities for those investor who will take the time to learn the secrets.

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Tax Lien Auctions - Your Quick Guide