Guide to Buying Tax Sale Properties
Though tax sales are complicated, these sales have the potential to allow buyers to purchase real estate property at a low price. When a property owner fails to pay his property taxes, states allow the tax collector to sell either a tax lien or a tax deed to recover these taxes. However, there are significant differences between tax liens and tax deeds that potential buyers should understand.
Other People Are Reading
-
Tax Lien Sales
-
At a tax lien sale, the winning bidder pays the tax bill and gains a first position lien on the property, with the exception of state tax liens. This means after a waiting period that varies by state, the winning bidder has the right to take the property or force its sale to receive payment of the lien and fees. However, the majority of property owners pay off the tax bill before losing the property. When the owner pays off the taxes, she must also pay an interest penalty that goes the tax lien holder. The interest on tax liens vary, but can be 20 percent or more. Though buying a tax lien is unlikely to result in owning a property, it can produce a profit.
Tax Deed Sales
-
Though few people will lose a home due to not paying property taxes, it does happen. In the 19 states that have tax deed sales, not tax lien sales, the county sells an actual deed to the property. At these auctions, the highest bidder will walk away owning the property. Before attending one of these sales, a buyer should visit the property in person to assess condition, visit the courthouse to examine the title for problems or hire a title agency to examine it, and visit the tax collector's office to make certain the office sent the tax notice and that it did not receive payment.
-
Redeemable Tax Deeds
-
In addition to selling liens and deeds, some states sell redeemable tax deeds. A redeemable tax deed sale works like a tax deed sale, except that the property owner has a period of time to pay off the taxes before losing the property. The process to take ownership and the amount of time before ownership varies from state to state. However, like a tax lien, a buyer receives a generous rate of return on the investment if the owner pays off the property taxes.
Other Information
-
A property owner who files bankruptcy after receiving a tax lien or redeemable deed may receive from the courts a longer time period to pay the debt and a reduction in the interest rate he must pay. In some states, property owners have longer than a year to pay off a tax lien. In this case, the lien holder should attend the next tax sale and buy the new lien in order to not lose priority status on the property if the owner fails to pay her taxes. In some states, tax lien interest rates vary and the state sells the tax lien to the bidder willing to accept the lowest rate.
-
