How to Collect Tax Lien Defaults

Research state regulations and individual properties before placing a bid.

When a homeowner fails to pay property tax, states hold tax lien certificate auctions and/or tax deed sales. A tax certificate auction is an investment opportunity, not a home purchase. On the other hand, tax deed sales result in a transfer of ownership to the winning bidder. Bidders must research state regulations as well as individual properties and be aware that government liens remain attached to the property, even after the sale.

Instructions

1. Research properties that are listed for a tax lien certificate auction. The winning bidder pays the amount of property tax due, receives a tax lien certificate and an interest-bearing account is established. If the homeowner pays the back taxes, the investor has made a nice return. If the homeowner doesn't pay within a state-specific redemption period, the certificate holder can initiate foreclosure proceedings on the property.

2. Attend a tax deed auction. Unlike a tax certificate auction, these bids are to purchase the property, and the winning bidder obtains a tax deed. Research the property before bidding; you may not want it if it's on protected wetlands or an inaccessible lot. In addition, government liens remain attached to the property and are the responsibility of the winning bidder. States may set a minimum bid that's a percentage of fair market value, or allow a lower bid that covers the amount due.

3. Take possession of the property, but research state laws to determine whether there's a redemption period. Some states allow a delinquent homeowner to pay the back taxes and reclaim the property after the auction. If that's true for your state, you can go ahead and move in, but don't make any major repairs on the home until the redemption period has expired.

References

• Broward: Tax Certificate Sale Frequently Asked Questions
• Broward: Tax Deeds Frequently Asked Questions