County Tax Lien Sales - Overview

What is a Tax Lien Sale?

It is a sale held yearly by most counties/government agencies in the United States to satisfy delinquent property taxes owed by property owners.

In a Lien Sale, delinquent taxes along with accrued interest and/or fees associated with the sale is offered at public auctions to prospective investors. Winning Bidder will have what is called a "tax-lien certificate" which just states that you as the winning bidder own the "first position lien" against the property that is bought at the lien sale. It is just saying you,as the investor, claim the amount you bought the property for (can be an interest of 8%-50% per year) + interest and/penalty fees (depending on the state or county) when the property redeems.

The Process:

The government needs cash more than ever to provide services to the public.

Examples: Roads, Fire Trucks, Police, Office Officials, Traffic Maintenance, etc. When property owner's don't pay on time, the government/counties become short on cash-flow. The last resort the county has is to put a lien against the property and sale the lien at a public auction to satisfy the outstanding balance owed by the property owner.

After properly notifying the property owner, the county then initiates the auctioning of the lien process. A sales date, time,and place is chosen by the appropriate agency dealing with the matter. Then the list of parcels that will be available for sale at the auction are advertised on county websites and/or local news papers for cash or certified checks.

In the event that more than one investor seeks the same lien, depending on state law the winner will be determined by one of five methods:

1. Interest Bid Down Method-The investor that bids down the lowest interest rate wins.

2. Premium Bid-The person/investor that is willing to bid the highest wins.

3. Random Selection- A random selection is made by a computer to choose from registered or interested lien buyers.

4. Rotation Method-A bidding number from the investors will be chosen. The first bidder will choose to accept the offer or decline. If the first one declines then the second chosen bidding number will make a decision whether to accept or not.

5. Bid Down Ownership-a bidder may agree to take a lien on only 85% of the property. If the lien is not redeemed, the investor would only receive 85% ownership of the property with the remaining 15% owned by the original owner. In practice, few investors will bid on liens for less than full right to the property or sale proceeds. Therefore, with multiple owners bidding on 100% encumbrance, the process then generally reverts to the random selection.

Redemption:
When buying tax lien certificates, depending on the counties, there are rights given to property owners to redeem the property back. If these property owners do exercise this right, they have to, in most cases, pay the county back your initial investment plus interest, and other fees associated with the sale.

Outcomes When investing in Tax Liens:
1. Property Redeemed- the investor gets back what he/she invested in plus interest, and other fees.

2. Property Not-Redeemed-Investor gets the property free and clear of any mortgages and will get the opportunity to apply for a deed and own the property for the price of the back taxes.

Purchasing Tax Liens can be a very safe and secure way to invest in real estate but you have to do it right.

With that being said, here are some risks associated when investing in Tax Lien Investing:

1. Property Owner files for Bankruptcy.

2. The IRS files a lien against the property.

3. Poor or no research before investing in Tax Liens or Deed certificates

4. Buying a property that has environmental issues.

5. Buying properties in Worthless/undesirable/unsafe neighborhoods.

6. Bought or buying a property that has clouded/Un-insurable title.

7. Not doing title searches.

8. Not familiarizing with Tax Lien investing laws before investing.

9. Not learning the rules and procedures for each counties to be investing in.

These are just some of many risks or challenges when investing in tax liens and deeds.

If you could avoid or deal with these challenges, you can invest in Tax Liens with a peace of mind.
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