Before deciding where to invest, it may surprise you that tax lien investing includes three different types of investing: (1) tax lien certificates, (2) tax deeds, and (3) tax deeds with right of redemption.
Tax lien certificates or tax liens are debts on real estate. In many states if you fail to pay your property taxes within the state-mandated period, the county or municipality will place a lien on your property. The lien bears an interest rate or penalty that investors can purchase. The property owner must pay the taxes owed plus interest and penalties to remove the lien; otherwise, the next step is foreclosure and loss of the property.
In other states, the property owner is given a longer grace period, but eventually the county places a lien and forecloses on the lien, then sells the deed (ownership to the property) at auction. An auction is held, just like a mortgage foreclosure auction, and an investor can purchase the property, often for only the taxes owed, but remember it is an auction so you may be bidding against others.
Finally, a hybrid method exists where the county forecloses on the property, sells the deeds at auction, but allows the property owner one last chance to buy it back or redeem. Usually there is a hefty penalty for buying it back. For example, in Texas the penalty is 25% within 6 months.
With that brief explanation, please look through this summary of tax lien states and compare interest rates with redemption periods, and then factor in where you live and if the state has online (i.e., Internet) auctions or over-the-counter (OTC) tax liens. OTC tax liens and deeds are purchased after the sale. The redemption period is the time that property owners have to pay back their taxes.
Tax Lien Certificate States
State | Interest Rate | Redemption Period | OTC or Online | Notes |
Alabama | 12% | 3 years | OTC | Auctions are held in April, May, or June. Bid down the interest rate in 1% increments. |
Arizona | 16% | 3 years | OTC Online | Online auctions are held in February. Unsold liens are for sale OTC. Tax deed sales are also held. Interest rates are bid down at auctions or online. |
Colorado | 9% plus federal discount rate – currently 4% = 13% | 3 years | OTC | Auctions (some online) occur on or before the second Monday of December, with most scheduled in October and November. Some counties use a round robin process; in other counties, the highest bidder is awarded the tax lien. Premiums on bids are not refundable, nor do they earn interest. |
Florida | 18% | 2 years | OTC | Online and courthouse auctions are held on or before June 1. The winning bidder pays 10% of the total tax lien at the sale, and the balance within 48 hours after the lien certificate is prepared. Bidding can proceed downward to as low as 1/4% and the bidder still receives a minimum of 5% interest. Florida also has tax deed sales. |
Illinois | 18% flat or penalty every 6 months; farmland, 12% every 6 months. | 2 – 2 ½ years, depending upon the property classification | Two types of sales are held: annual tax lien sales for recently delinquent properties (usually held in the fall); and biennial scavenger (tax deed) sales (held in odd years) for properties delinquent two or more years that were not sold at the annual sale. Pre-register 10 days to 1 month before the sale to bid. Interest rates are considered penalties. | |
Indiana | Flat 10% on minimum bid (6 months). Flat 15% on minimum bid (6 to 12 months). Overbid amount is 10% per annum. | 1 year for “A” and “B” properties; 120 days for “C” properties | Online | Auctions (some online) are usually held from August through October. If the owner does not redeem the tax lien certificate, you must apply for a tax deed within 6 months after the redemption period expires or forfeit your money. Counties can also hold tax deed sales, referred to as surplus auctions. |
Iowa | 24% | 21 months | Auctions occur on the third Monday in June. By state law, counties can allow bidders to bid on the percentage of the property they will own, making foreclosure more difficult. The bidding process is commonly done by random round robin. | |
Kentucky | 12% | 1 year | Kentucky parishes do not emphasize their tax certificate sales, and it is difficult to find information on the Internet. | |
Maryland | 6% to 24%, depending upon the county or city | 6 months, if the right of redemption has not been barred by foreclosure | Auctions are usually held in May or June. Local variations to the tax lien process can be tricky. The high-bid premium is refundable without interest upon redemption of the tax lien certificate. | |
Mississippi | 18% | 2 years | Bidders can overbid the minimum bid set, but the overbid is not reimbursed upon redemption, and no interest is earned on it. | |
Missouri | 10% on the minimum bid; no interest on the overbid. Subsequent taxes – 8%. | 1 year for 1st or 2nd offerings; 90 days for 3rd offering; 4th offerings are deeds | Auctions in every county are held on the fourth Monday in August. Bidders bid up the taxes but only receive interest on the amount owed. Must be a Missouri resident or obtain a notarized affidavit. First class charter counties may conduct tax deed sales instead of tax lien sales. | |
Montana | 10% | 2 to 3 years, depending upon the property type | Not a lot of public information on tax lien certificate sales. Counties may conduct tax deed sales of properties not sold at the tax lien sale. | |
Nebraska | 14% | 3 years | Auctions are held on the first Monday in March. Bidding is by round robin, with bidders proceeding in order based on the bidding number. Tax deed sales may be held at the county’s discretion. | |
Nevada | 12% | 120 days for vacant land, 2 years for improved land | Tax lien sales (called special assessment sales) are infrequent in most counties. Most counties conduct tax deed sales, also called trustee sales. There is a two-year legal challenge period for trustee sales. | |
New Jersey | 18% | 5 years | Sale rules are complex, with sales being conducted by municipalities. Once the interest rate goes to 0%, bidding begins on the property taxes owed. The highest “premium” bidder wins. Tax deed sales are also conducted. | |
New York | 10 to 24%, depending upon the county or municipality | Minimum of 2 years | Process varies between governing bodies. Governing bodies may hold tax lien and/or tax deed sales. Most counties hold tax deed sales. Tax lien sales—such as New York City—may be closed to the public. | |
Ohio | 18% | 1 to 3 years | Tax lien sales are only held in counties with a population greater than 200,000. Only institutional investors are allowed to participate in the sales. Tax deed sales are held in all other counties. | |
South Carolina | 12% unless alternative method, then 8% penalty first year plus 4% second year. | 1 year unless alternative method of taxation; then 18 months | The winning bidder must pay by the end of the sale day. Interest is not paid on a prorated basis, but rather on a schedule. The interest paid cannot exceed the minimum bid. | |
Vermont | 12% | 1 year | Municipalities (cities) handle tax collection. Unless otherwise noted, the first constable is automatically the tax collector. | |
Washington D.C. | 18% | 6 months | Auctions are held the third Tuesday in July. Bidding begins at the amount of delinquent taxes – the winning bid is the highest bid. There is no interest on the overbid. Tax deed sales are called bid off sales. | |
West Virginia | 12% | 17 months | Properties left over from the lien sale are certified to the State; if not redeemed, they are sold at “second sales.” Buyers at second sales receive a deed within 90 to 120 days, during which time it can be redeemed. | |
Wyoming | 3% minimum penalty fee plus 15% per year for the first year; 18% per year for subsequent years. | 4 years | Wyoming law prescribes a strict procedure that must be followed to properly apply to the Treasurer’s Office for a tax deed. It is the burden of the certificate holder to make sure all the steps are followed properly. |
Tax Deed States
State | Comments |
Alaska | Details and times vary based on borough rules. |
California | Online sales available; allowed by law to sell liens but have not done so. One-year legal challenge period. |
Idaho | Financing may be available through the county. |
Kansas | Held at various times. |
Maine | In certain rare cases, a right of redemption of 8% exists. Bidding is in fractional parts of land. |
Massachusetts | Allowed by law to sell liens. |
Michigan | Refer to the tax reversion process listed on Michigan.gov. |
Minnesota | Refer to the Conservation/Nonconservation list. |
New Hampshire | Sales handled through municipalities. |
New Mexico | Mortgage may not be eliminated. |
North Carolina | Property tax foreclosure sales. Upset bids are allowed 10 days after the sale, resulting in another bidder paying more to obtain the property. |
North Dakota | Sales held on third Tuesday in November. Not many properties available. |
Oklahoma | Tax deed sales occur on the second Monday in June. |
Oregon | Called Sheriff’s sales of surplus county-owned property. |
Pennsylvania | Complicated system: four types of sales; mortgage not removed in two of four sales. |
Utah | Complicated bidding on portion of land. Winning bidder may only own a small fraction of the land. |
Virginia | Sporadic sales authorized by the Court on properties with two or more years of taxes owed. |
Washington | Refer to Tax Title Properties. |
Wisconsin | Minimum bid starts at the appraised value. |
Tax Deed States with a Right of Redemption
State | Interest Rate | Redemption Period | Notes |
Arkansas | 0% | 30 days | The State Land Commissioner (cosl.org) handles all tax sale auctions. Mail-in bids are accepted if received 7 days before the sale. |
Connecticut | 18% | 6 months | Municipalities handle the sales: bidding requirements vary. Some municipalities may only offer deeds in bulk purchases. |
Delaware | 15% to 20%. | 60 days or 1 year. | There are only three counties. |
Georgia | 20% flat rate first year; 10% after the first year. | 1 year | If redemption doesn’t occur, you must be prepared to pay subsequent taxes and foreclose. Auctions occur on the first Tuesday of each month. |
Hawaii | 12% | 1 year | Hawaii only has five counties. In Kalawao County, tax sales are handled by the State. |
Louisiana | 12% plus 5% penalty, total 17% | 3 years from the date the deed is filed | The Sheriff acts as the tax collector for parishes. Buyers may bid for a portion of ownership. |
Rhode Island | 10% first six months + 1%/month | 1 year | After one year, the investor automatically is responsible for the property, even before foreclosure. |
Tennessee | 10% | 1 year | Tax sales must be confirmed by the court. |
Texas | 25%/6 months. 50%/2 yrs. | 6 months or 2 years for agricultural properties and homesteads. | Tax deed sales are held on the first Tuesday of the month. |
I hope you enjoyed this lesson. Stayed tuned for more.
Happy Investing,
Gus and Mike
Authors/Investors | https://taxforeclosuresales.com/training/
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