Tax Lien Strategies

Tax liens are issued on residential homes, business property and vacant land.

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Property owners have a specific amount of time to pay their taxes before the property taxes become delinquent. At that time, the county tax collector or county treasurer issues a tax lien for the unpaid tax amount. The tax lien acts as a secured first lien against the property until the taxes are paid or the lien is sold. Before buying a tax lien, you might want to consider which strategy best fits your investment goals.

Choosing a Strategy

Each state that issues tax liens has their own statutes controlling tax lien sales and property foreclosures. The differences may influence your tax lien strategy. If you are looking for interest income, select a state that pays a high interest rate, such as Iowa’s 24 percent interest rate or Florida’s 18 percent interest rate. If you want to foreclose and own the property, look for states with a short or no redemption period such as Arizona.

Buy and Hold Strategy

The buy and hold strategy works well with states that pay high interest on their tax liens. You can buy and hold a tax lien to let the interest income accumulate until the property owner redeems the lien or you decide to foreclose. For example, if you purchase a Florida tax lien with a face value of $1,000 that pays 18 percent interest and hold it for five years, your investment will earn $900 in interest.

Assignment Strategy

The assignment strategy is ideal for investors who want to profit from tax liens but do not want their money tied up for a long time. Many counties allow you to assign or sell your tax lien to another investor on the secondary market. You can sell your tax lien through an online auction site such as eBay or Bid4Assets by registering and listing your tax lien. After the auction, you can go to the county tax collector’s website and download the documents transferring ownership to the winning bidder.

Foreclosure Strategy

Before filing a foreclosure action, you must first purchase at least one of the property’s tax liens. Some states have waiting periods before you can start to foreclosure. For example, you must wait three years after purchasing an Arizona tax lien before starting foreclosure proceedings. In Florida, however, you can start foreclosure proceeding as soon as you purchase a tax lien.

Getting the Deed

The tax collector’s office will notify the property owner that a foreclosure action has started and the final date to pay the taxes. After the foreclosure is completed in Arizona, the county tax collector will issue a deed to you. In Florida, the county tax collector holds a public auction where you must be the high bidder to own of the property.

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About the Author

Based in St. Petersburg, Fla., Karen Rogers covers the financial markets for several online publications. She received a bachelor's degree in business administration from the University of South Florida.

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