Even after the crash in the mid-2000s, there are still plenty of opportunities to make investments in real estate. Aside from bank foreclosures, property is also sold at discounted rates resulting from delinquent property tax bills. The revenue generated from property taxes are vital to every city, town and county in the United States. Tax collectors will foreclose on properties if the taxes have not been paid. If you pay overdue property taxes, you can get the title to the property through an auction sale. There are different auction formats throughout the country, but they are generally advertised in local papers beforehand.
Taxes are imposed on real property, including vacant land and lands with homes, across the country. The taxes are assessed and collected at local levels, such as the county or city. Tax rates vary drastically among different locations, but in general bigger cities have much higher taxes than rural areas. If a land owner fails to pay his property taxes, the tax collector will attempt to collect the past due amount. Ultimately, the property could end up in a foreclosure auction if a payment is not received.
Tax Lien Sales
Some taxing authorities choose to sell tax lien certificates to make up for the financial loss resulting from unpaid property taxes. Once the tax collector determines the property owner is delinquent on the tax payment, a lien is filed on public record. An interested buyer can then buy a lien certificate, making him the lien holder. The specific terms of the tax lien sales vary by location, but they are commonly held like an auction. The certificate is placed up for sale in the amount of the unpaid taxes plus penalties and fees. The attendees bid not on the price of the certificate, but on the interest rate charged on the lien.
Lein Holder Options
The winning bidder is issued the lien certificate. After that, the interest rate that was bid on will be applied to the unpaid tax amount for a certain amount of time, usually a few years. If the property owner pays the past due amount, he'll be charged the interest rate. The certificate holder will make back his investment, plus interest. If the property owner fails to repay the unpaid taxes within the specified time frame, the certificate holder has the right to initiate foreclosure through the court system. If successful, he would then become the legal owner and title holder of the property.
Tax Foreclosure Sales
Tax foreclosure sales, sometimes called tax deed sales, are more similar to a mortgage foreclosure. Once the property owner is in property tax default for a specific period of time, the tax collector has the right to enforce its power of sale right. These sales are held in an auction format as well, and bidding typically begins at the amount of the past due taxes plus the acquired fees. The property is sold to the highest bidder, who will be issued a deed by the tax collector once payment is received. Payment is generally due the day of the sale.
Unlike mortgage foreclosures, most tax foreclosures do not have a right of redemption period. This means that the previous owners don't have any time after the sale to come up with the money to pay the taxes and reclaim ownership. The winning bidder is given the deed within a few days or weeks of the sale, depending on how fast the tax collector processes the foreclosure sales. At this point the bidder is the legal owner, however, there may be other complications such as the previous owners refusing to vacate the property. In cases like these, legal action might be necessary to evict.
- Tax Policy Center: State and Local Tax Policy: How Do Property Taxes Work?
- Realtor: Buy Distressed Properties: Tax Lien vs. Tax Deed Sales
- Foreclosure.com: Tax Deed Sales
- Buncombe County North Carolina: Tax Foreclosure Sales
- Los Angeles County Treasurer and Tax Collector: Annual Public Auction Tax Sales Frequently Asked Questions
- Rogue Investor: Tax Deed Sales Information by State
- Foreclosure University: What is a Tax Lien Certificate and How to Buy Tax Liens
- Martha O. Hayine, CPA Comptroller Orange County Florida: Tax Deed Sales
- Foreclosure University: What Is a Tax Lien Certificate and How to Buy Tax Liens