How Do Property Tax Lien Sales and Auctions Work?

If you’re looking for a good business opportunity in real estate, you may have heard of tax deeds. Tax deeds promise a better return than the traditional stock market, and, at least according to many so-called experts, the possibility to buy an entire house or property for just a few thousand dollars.

How Tax Liens Happen

When someone doesn’t pay their yearly property tax bill to the county, the county (or other governing authority) places a tax lien on the property. But governments have a problem.

On one hand, they don’t want to just foreclose on people and kick them out of their home, the way that a bank would do if you didn’t pay the mortgage. The government wants to give people time to pay back owed taxes.

But the government also can’t wait too long to get paid because they rely on tax money to run the crucial services needed to run a city or county.

Offering Tax Liens

So, the government offers investors the chance to invest in tax liens.

An investor will pay to the government whatever a homeowner may owe for back owed, unpaid property taxes. When and if that homeowner does pay the taxes back, the investor will get that money back, with interest—an interest rate that will generally be a higher return than say a mutual fund or CD or other investment vehicle, sometimes as high as 18%.

If the property owner never pays, the property will be sold at a tax deed auction, or the lien holder can foreclose. The value of the property, that is, the purchase price at any foreclosure sale or county auction, will usually far exceed the back owed taxes with interest, which again, goes to you, as the investor who paid off the back owed taxes.

If You’re a Purchaser

From a purchaser’s standpoint, if you don’t own the lien but just want to buy property at what seems like a great deal, the starting bid to buy the property at county tax deed auctions is usually just the back owed taxes, with any interest, fees or penalties—all told, a really good deal for a piece of property.

That’s because tax liens are superior to all other liens, including a first mortgage, so they wipe out even first mortgages. There are some liens that do survive a tax lien foreclosure, like some municipal liens from code violations, and some federal tax liens.

However, a lot of people know this, and after bidding, the end purchase price may or may not be such a great deal (and that’s assuming the property is in some kind of decent shape, which it often is not).

Up until the foreclosure sale, the homeowner does have the right to redeem the property, which will still get the tax lien investor paid back with interest, but will prevent the property from being sold at foreclosure or tax deed sale auctions.

Let us help you with the legal aspects of your property investment business. Contact the West Palm Beach commercial litigation lawyers at Pike & Lustig today.

Sources:

brevardclerk.us/tax-deeds

miamidadeclerk.gov/clerk/property-tax-deeds.page