Investing in real estate through county auctions can be extremely lucrative if the right property is purchased. Property tax sales are a great way for real estate investors to collect interest on unpaid property taxes or purchase the deed to desirable real estate significantly below market value. Before you start waving your bid card, it’s important to understand how property tax sales work and what the end result will mean for you and your investment.

Property Tax Sales by State

The processes for property tax sales vary by state; however, such a sale comes as a result of the current property owner’s failure to pay property taxes. Each state must wait for a legally required length of time before bringing a tax lien or deed to auction. This time frame varies from state to state and can last for as little as a few months or as long as a few years.

In most cases, the highest-paying bidder will win the auction; however, some states conduct bid-down auctions. In this auction, bidders specify the lowest interest they’re willing to collect on their investment and the lowest-paying bidder wins. This is done as a way to soften the blow on the delinquent taxpayer, allowing them the opportunity to pay an interest rate below the statutory 18%. This type of bidding is only done for tax lien foreclosures.

Types of Property Tax Sales

When bidding on property tax sales, it’s important to note in which type of property tax sale you’re participating. There are two main types of property tax sales available for real estate investors: tax lien and tax deed sales.

Tax Lien Sales

In the event of a tax lien sale, delinquent taxpayers have their property tax lien brought to auction. Bidders compete to win a “tax lien certificate,” which places the purchaser first on the property title, before mortgages, trust deeds, and most other private liens except for state tax liens. By winning a tax lien certificate, bidders pay off the tax debt for the property owner. The property owner then becomes responsible for paying back that debt plus interest to the purchaser.

A tax lien sale is often win-win for the purchaser: If the delinquent taxpayer pays off their debts, the purchaser earns back their initial investment plus interest. If the property owner fails to pay their debt, the purchaser has the right to foreclose and take title to the property.

Tax Deed Sales

A tax deed sale occurs when the state auctions the deed to a delinquent taxpayer’s property. The winning purchaser becomes the new owner and secures all rights to the property. Moreover, the purchaser is not responsible for paying any pre-existing mortgages, liens, deeds of trust, or other such fees.

Tax deed properties are typically sold for back taxes, interest charges, and court costs. This means investors can purchase property at a fraction of its market value. However, in order for purchasers to avoid responsibility for pre-existing mortgages, liens, deeds of trust, and other lingering fees, they will need to remove any existing blemishes from the tax title’s history and obtain title insurance to avoid future legal troubles.

Tax Title Services for Property Tax Sales

Whether you’ve purchased property through a tax lien or tax deed auction, the tax title curative consultants at Tax Title Services can help clear your title and get you the coverage you need. Through our certification process, we’ll ensure foreclosure due process was completed accurately, matching you with a nationally recognized insurance underwriter to protect your assets.

Contact us today to get started on protecting your investments!