A deed is a document that transfers ownership to property. A tax deed is a special type of deed resulting from nonpayment of taxes.

In many U.S. states and Canadian provinces, Jerry Latepay is given many opportunities to pay his taxes. After multiple warnings, the county puts his property up for sale to investors, often for as little as the taxes, penalties and fees that Jerry owes. At a tax deed auction, the winning bidder receives the deed to Jerry’s property. In some cases, Jerry may still have a short time to redeem after the sale; otherwise, the investor becomes the legal owner of the property.

The investor may have to wait a year or so to obtain a marketable title, but the investor may have just bought Jerry’s property for a fraction of what it is worth.