How to Buy a House From Tax Seizures

State and local laws determine the process for seizing and selling properties whose owners have failed to pay their property taxes. In tax-deed states, buyers purchase seized properties outright. In tax-lien states, they purchase tax certificates, which are liens against the seized properties on which the holders earn interest. Tax-deed purchases are made through real estate auctions. The process for buying and redeeming tax liens, on the other hand, is more complicated, as the lien holder must eventually foreclose on the property in order to gain possession.

Instructions

1. Watch your local newspaper's legal notices for tax sale announcements. Contact your county courthouse to request a list of homes scheduled to be sold. Find out if the auction is for tax deeds or tax liens.

2. Arrange for an inspection of the home you want to bid on during any designated inspection period. If there is no such designated time, drive past the property to see whether the house has any obvious signs of serious structural damage. You can also ask neighbors about the status of the property, though they may not have an unbiased opinion.

3. Register for the auction according to the procedures followed by your jurisdiction. The auction may be held online or at the courthouse or other venue.

4. Contact the tax collector to learn the bidding rules and procedures, particularly if you're bidding on a tax lien. The winning tax-lien bid could be the one accepting the lowest interest rate or making the highest offer above the minimum price.

5. Make note of the taxes due on the home as well as the starting price. Decide how much you'll bid.

6. Have available the funds you need to close your auction purchase, in the form the auction requires. This is typically cash, cashier's check or money order. Submit your payment as required.

7. Record your deed upon transfer if you win an auction for a tax deed. Record the lien if you purchase a certificate. Contact your county recorder of deeds for instructions.

8. Hold your lien certificate until the end of the redemption period, which typically ranges from one to three years.

9. Purchase the tax lien in each subsequent tax year until the redemption period ends.

10. File a foreclosure action with the circuit court in the jurisdiction where the home is located if the owner fails to pay the back tax before the redemption period ends. This will allow you to take possession of the home.

Tips & Warnings

• Take note of your certificate's expiration date, if it has one. You'll need to foreclose before that date or else your certificate becomes void.

• Some tax auctions require immediate, full payment. Others require a deposit at the auction's end and full payment within a specified period that typically ranges from a day or two to 30 days, depending on the jurisdiction.

• Tax-seized homes are sold as-is. It's very risky to purchase one without a full inspection by a licensed home inspector.

• The demand for tax liens stems from the potentially lucrative return holders receive from interest. However, there's no guarantee the holder will ever take possession of the home. The owner or another party can redeem the home by paying the delinquent tax and making the interest payments to the lien holder. In addition, a lien covers just one tax year. The holder must purchase a tax lien each year if she hopes to take title.

• In some jurisdictions, interest on the lien applies only to the tax portion, not the whole purchase price of the lien.

References

• Ann Arundel County, MD: General Questions Asked About Tax Sale
• NJ Division of Local Government Services: Elements of Tax Sales in New Jersey
• "The Washington Post"; D.C. Tax-Sale Auction Process is a Real Estate Marathon; Harvey S. Jacobs; Oct. 2010
• Maricopa County, AZ Treasurer's Office: FAQ--Regarding Tax Liens
• REIClub.com; Tax Lien Investing; Darius Barazandeh