A property tax sale may present a financial opportunity to an investor or anyone looking to save money on a property. Local governments use property tax sales to collect overdue real estate taxes. State laws determine both how long taxes may go unpaid before the property goes up for auction and the method used to recoup the money.
Tax Lien Sale
Some states, including Iowa, use a tax lien sale system. If you're bidding on a tax lien, what you're actually buying is the lien created by the unpaid taxes. You hold the lien and may charge interest -- the percentage is determined by state laws -- if the homeowner buys the lien back from you. Once the state deadline for the homeowner to pay off the lien has passed, you can apply for a deed from the local government.
Tax Deed Sale
Other states, such as Florida, use a tax deed system. You're bidding on the property itself, not the tax lien, and may receive the deed immediately after paying your winning bid in full. Some states offer homeowners a redemption period, an amount of time after the sale during which the homeowner can buy the property back from you. The homeowner must pay you the bid price and the interest amount determined by state law. If the homeowner doesn't redeem the property before the redemption period ends, you can apply for the deed from the local government.
The exact process for a tax lien or deed sale varies by state, but you'll find some common aspects. The local government conducting the sale must post public notice in advance. Many post notices in the legal section of a local newspaper and have information on their official websites. You'll need to follow the instructions in the public notice. You might have to register with the local government before the auction for permission to bid and will need to have money with you in the form the government requires, such as a cashier's check. You may need to have the full amount you bid or a significant percentage with you at the auction, depending on the government's rules.
Research is necessary before you attend any tax lien or deed auction. You're buying the property "as is" and won't have a chance to inspect the interior before you bid. Drive by and look at the exteriors of the properties you are interested in to get some idea about their conditions. Check the public land records for possible problems with the property's title, or ownership interest, and with local government agencies about other possible back taxes and assessments.
Anna Assad began writing professionally in 1999 and has published several legal articles for various websites. She has an extensive real estate and criminal legal background. She also tutored in English for nearly eight years, attended Buffalo State College for paralegal studies and accounting, and minored in English literature, receiving a Bachelor of Arts.