What Are Tax Lien Sales for Homes?
Tax lien sales offer an alternative way to invest in real estate. When a homeowner fails to pay their property taxes to the collecting agency in their county, the corresponding county holds a tax lien sale to recover uncollected property taxes.
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Significance
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Tax lien sales help county governments fund public works such as parks, hospitals, schools, and other services. In the absence of property taxes, county governments lack the capitol necessary to function. Therefore, holding a tax lien sale helps the government get their money by auctioning the lien to a willing buyer.
Bidding
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Each county has its own method of bidding at a tax lien sale. For example, some counties may opt to use a bid down the interest method (giving the property lien to the person willing to accept the lowest interest rate), whereas another county may utilize a rotational bidding style.
Redemption
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Each state has its own interest rate and redemption period. For example, tax liens in the state of Delaware have a 15 percent interest rate, with a 1 year redemption period. If the homeowner pays the taxes before 1 year, the lien holder earns the stated interest rate according to the month of redemption. If the redemption period expires without payment, the lien holder may begin the foreclosure process.
Online
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Some states hold tax lien sales online to accommodate those who can't physically be present at the time of the auction.
Warning
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Most states require immediate payment at the time of the tax lien sale. In addition, it's a good idea to physically visit the property before deciding to bid on it. Failure to visit the property could result in bidding on a worthless or dilapidated property.
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