A tax lien sale is a public sale, typically an auction, that gives the government an opportunity to recover unpaid property taxes. The winning bidder gets the property’s lien and the possibility of either getting his money back with interest or obtaining full ownership of the property.
Locate Tax Lien Sales
Tax lien sales can be found in local newspapers, through tax collections or on the Internet. While the process will vary by state, generally the tax collector must wait a specific period of time and then, if the taxes remain unpaid, can put the unpaid taxes up for sale.
Winning the Bid
The bidding process varies per state. Usually the sale of the tax lien is awarded to the person willing to pay the most for the lien. However, in some states, the reverse is true and the person bidding the lowest wins. The winning bidder must pay in cash and, in exchange, receives the lien on the property.
Mandated Redemption Period
Every state has a mandated redemption period in which the original owner can pay the taxes due. In that case, the winning bidder will receive his money back, plus interest based on the percentage allowed by the state. If the original owner doesn't pay his property taxes during the redemption period, you, as the lien holder, can file a lawsuit to obtain ownership of the property. While this process can be costly and complicated, when it is done, you'll have ownership.
Pitfalls to Avoid
Check out the property before making your bid, especially if there are features, such as a house, that gives the property more value. You don’t want to end up bidding more than the property is worth. Visit the office where the tax collector’s records are kept. Confirm that the tax collector followed all proper procedures such as sending out the notices to the homeowner in a timely fashion. If your state has a redemption period that is over a year, protect your investment by paying the next tax bill.
Diane Stevens' professional experience started in 1970 with a computer programming position. Beginning in 1985, running her own business gave her extensive experience in personal and business finance. Her writing appears on Orbitz's Travel Blog and other websites. Stevens holds a Bachelor of Science in physics from the State University of New York at Albany.