All over the country, counties are plagued with shortages in the capital needed to function efficiently. These functions include funding for schools & teachers, public works, law enforcement, infrastructure & roadwork, etc… Where does a county obtain the money to support all these items that are pivotal to a strong economy and safe community? The answer, no one likes to hear is,….taxes. The necessary evil.
There are many different types of taxes that are levied against a resident but there is one in particular that drives a huge amount of revenue to a county and that is property tax. Property tax is an ad valorem tax on the value of the property. Real estate property tax when not paid can result in the loss of property in what is known as a tax sale.
Below is a complete chart of tax lien and tax deed redemption periods by state in the U.S.
|State||Abbr||TAX LIEN OR TAX DEED||REDEMPTION PERIOD||NOTES||STATUTE LINKS|
|Alabama||AL||LIEN||3 YRS||ADDITIONAL 3 YR OF POSSESSION REQUIRED FOR TAX CERTIFICATES||http://alisondb.legislature.state.al.us/alison/codeofalabama/1975/135590.htm|
|Arkansas||AR||DEED||90 DAY||2 YRS IF PRIOR OWNER IS DISABLED OR ACTIVE DUTY MILITARY||https://www.cosl.org/Home/Laws|
|Connecticut||CT||DEED||6 MO||60 DAY REDEMPTION PERIOD FOR ABONDEND PROPERTY||https://www.cga.ct.gov/current/pub/chap_204.htm#sec_12-157|
|District of Colombia||DC||LIEN||6 MO||https://code.dccouncil.us/us/dc/council/code/titles/47/chapters/13A|
|Georgia||GA||DEED||1 YR||JUDICIAL IN-REM TAX SALES DO NOT HAVE A REDEMPTION PERIOD||https://advance.lexis.com/container?config=00JAAzZDgzNzU2ZC05MDA0LTRmMDItYjkzMS0xOGY3MjE3OWNlODIKAFBvZENhdGFsb2fcIFfJnJ2IC8XZi1AYM4Ne&crid=c0e94e12-4730-4451-881e-7d57c1b585bd&prid=d1ef0e4a-f560-4a3f-bca1-09d66269998b|
|Hawaii||HI||DEED||1YR||IF DEED IS RECORDED W/IN 60 DAYS OF THE TAX SALE||https://tax.hawaii.gov/legal/taxlawandrules/|
|Iowa||IA||LIEN||1 YR 9 MO||9 MO – IF PREVIOUSLY OFFERED OR 3 MO – IF VACANT/ABONDEND||https://www.legis.iowa.gov/law/iowaCode/sections?codeChapter=447&year=2022|
|Maryland||MD||LIEN||6 MO||9 MO – OWNER OCCUPIED BALTIMORE CITY||https://dat.maryland.gov/Pages/Tax-Sale-Information.aspx|
|Massachusetts||MA||DEED||6 MO||2 YR – IF PARTIAL PAYMENT IS MADE DURING REDEMPTION PERIOD||https://malegislature.gov/Laws/GeneralLaws/PartI/TitleIX/Chapter60|
|New Hampshire||NH||DEED||NONE||TYPICALLY SOLD BY CITY/TOWN||https://www.gencourt.state.nh.us/rsa/search/default.aspx|
|New Jersey||NJ||LIEN||2 YR||https://advance.lexis.com/container?config=00JAA5OTY5MTdjZi1lMzYxLTQxNTEtOWFkNi0xMmU5ZTViODQ2M2MKAFBvZENhdGFsb2coFSYEAfv22IKqMT9DIHrf&crid=d1e67e65-a802-49f5-879d-c9ed8a9f1930&prid=0f5a1c40-e43f-49f2-a1e3-2fdc252aa400|
|New York||NY||LIEN||2YR||1 YR – VACANT/ABONDEND||https://www.nysenate.gov/legislation/laws/RPT/A11|
|Pennsylvania||PA||DEED||NONE||PHILADELPHIA AND ALLEGHANY COUNTY CAN HAVE REDEMPTION PERIODS||https://www.legis.state.pa.us/cfdocs/legis/li/Public/ucons_index.cfm|
|Rhode Island||RI||LIEN||1 YR||http://webserver.rilin.state.ri.us/Statutes/TITLE44/44-9/INDEX.HTM|
|South Carolina||SC||LIEN||1 YR||https://www.scstatehouse.gov/code/t12c051.php|
|South Dakota||SD||LIEN||3YR OR 4YR||3 YR – IN CITY LIMITS OR 4 YR – OUTSIDE CITY LIMITS||https://sdlegislature.gov/Statutes/Codified_Laws/2037405|
|Tennessee||TN||DEED||1 YR||120 DAY – PETITION THE COURT FOR VACANT/ABONDEND||https://advance.lexis.com/container/?pdmfid=1000516&crid=e677c4ff-95ad-4c9f-b493-9d033dd12e16&func=LN.Advance.ContentView.getFullToc&nodeid=ACO&typeofentry=Breadcrumb&config=014CJAA5ZGVhZjA3NS02MmMzLTRlZWQtOGJjNC00YzQ1MmZlNzc2YWYKAFBvZENhdGFsb2e9zYpNUjTRaIWVfyrur9ud&action=publictoc&pddocfullpath=%2Fshared%2Fdocument%2Fstatutes-legislation%2Furn%3AcontentItem%3A4X26-BN50-R03J-K0J9-00008-00&pdtocfullpath=%2Fshared%2Ftableofcontents%2Furn%3AcontentItem%3A8001-XKW0-Y907-33PJ-00008-00&ecomp=p3vckkk&prid=d8c0bfb0-d894-4528-a763-5ca029479049|
|Texas||TX||DEED||6 MO OR 2 YRS||6 MO – NONHOMSTEAD / 2 YR – HOMESTEAD OR AGRICULTURE||https://statutes.capitol.texas.gov/Docs/TX/htm/TX.34.htm|
|West Virginia||WV||LIEN||18 MO||https://code.wvlegislature.gov/11A/|
A tax sale happens when a homeowner fails to pay property taxes. Tax deeds or tax liens are offered for sale at public auctions as a way to collect the outstanding taxes owed. These taxes are pivotal to the livelihood of any town or county across the country. Every state has differing laws and statutes on conducting tax sales as a tax sale is not something a county takes lightly.
During a tax sale an individual could potentially lose real property, first mortgages can be extinguished along with a slew of other liens and encumbrances. The fact that a tax lien against a property outweighs the importance of a mortgagor should speak volumes as to how important property tax is to a county.
Across the country, counties sell either tax liens or tax deeds. That statement is broad because there are some states like Florida that will sell both. Counties in Florida will sell the tax lien before the tax deed is sold. Or take a state like Alabama that sells either tax liens or tax certificates depending on the county.
In AL, liens and certificates may seem similar but are actually very different for investors. Many states use a different form of conveyance other than a tax deed but to keep us on topic we will stay general and refer to the states as either tax deed states or tax lien states. The big difference between the two is a tax deed grants you ownership of the property where a tax lien is a legal claim against the property but does not grant you ownership interest in the property.
When investing in tax deed states, redemption periods are often confused with what are known as challenge periods or other state statutes that may provide an opening for a party of interest to challenge the validity of a tax sale.
During a redemption period, an interested party can pay the delinquent tax amount along with any interest penalties and other admin fees as set forth by the state statutes. This satisfies the tax lien and it is no longer enforceable.
Whereas, a challenge to the validity of the tax sale is very different than a redemption period. During these challenge periods a prior party of interest cannot just go pay the taxes, resume ownership interest and take the property back.
This is a very common misconception. The interested party will need to petition the court to overturn the tax sale which can be very challenging to accomplish.
In most cases, an error in the tax sale process would need to be proven to successfully overturn a tax sale. Since many tax deed states are non-judicial in their foreclosure process, these challenge periods are a large reason why it is very difficult to obtain title insurance for tax deed properties.
When investing in Tax Liens, an investor does not receive real property but they do receive rights to the delinquent tax debt plus some form of interest penalty. A tax lien is a legal claim, filed by the taxing authority, against a delinquent taxpayer’s real property.
So when personal property taxes are not paid, the lien is levied against the taxable asset and in this case that would be the underlying real estate being taxed. The county will sell the tax lien to a third-party investor and the lien will be in favor of the investor.
This means that when a taxpayer pays and satisfies their debt during the redemption period the investor is made whole plus accrued interest. This is very different from tax deed sales but offers the county the same relief as the amount of the lien being sold will satisfy the outstanding tax debt, giving the county the funds they need to function.
Redemption periods that impact a tax lien investor differ greatly from when and how they affect tax deed investors.
In most jurisdictions, a redemption period for a tax lien begins once the tax lien is sold.
The length of the redemption period can vary depending on the state but in most cases is never shorter than 6 months and will never exceed 4 yrs.
In fact, only Wyoming has a redemption period of 4 yrs and other states, under normal circumstances, cap the redemption period at 3 yrs.
I am not saying that every state has a max redemption period of 3 yrs. Every state is unique and the length of the redemption will vary state-by-state.
State statutes of redemption periods can even vary based on unique situations. Some states have shortened redemption periods if the property has been in tax sale for consecutive years while some states will extend redemption periods for mentally incapacitated or if the taxpayer is active military.
During an open redemption period, the delinquent taxes for another year could be sold.
A few states will sell a tax lien against a property when there is already a tax lien against the property. For example, last year I obtained a tax lien that satisfies the tax debt for 2018 but this year someone else purchased a tax lien on the same property that satisfies the 2019 delinquent tax debt.
Now we are both in an open redemption period and the delinquent taxpayer would need to eventually satisfy both parties to retain the property.
My point is that all states have differing statutes regarding the collection of the tax debt. No two states are the same and it is pivotal to understand all aspects of the process including the redemption periods and taxpayers’ rights that accompany tax lien sales.
During the redemption period, the debt accrues interest that will need to be paid in addition to the principal amount owed for a taxpayer to satisfy the debt and remove the tax lien. Some states allow for other administrative fees to be collected as well.
In MD for example, the redemption amount could include atty fees from the tax lien investor. Or in other states, the redemption amount could include the cost for serving notice to the taxpayer of the tax sale and/or the subsequent foreclosure. This leads into another misunderstanding about redemption periods and tax liens. Not every state will grant the tax lien investor the property after the redemption period has expired.
How a tax lien redemption period is closed by an investor varies drastically across the country. There are specific timelines for notifications, some states require judicial foreclosures, some states grant the tax lien investor the property and some states do not.
In Florida, after the tax lien redemption period has seasoned for a minimum of 2 yrs, tax lien investors can apply for a tax deed with the county. The county, however, does not just grant the tax lien investor the property. The county will hold a tax deed sale and attempt to sell the property to a third-party investor with the minimum bid starting at the amount of all the accrued tax lien debt. This tax lien debt could be from multiple tax liens against the property.
In IN, there are very strict notifications that need to be completed since there is a non-judicial process to foreclosing tax liens. In NJ, after 2 yrs of holding the tax lien the investor would go through a judicial foreclosure process.
It is extremely important for a tax lien investor to understand all the nuances to their rights, the taxpayers rights and how redemption periods impact there investments. A failure to grasp this info could result in a failure in your investment.
A Redemption Period is a term often used and misused in tax sale investing. Per HUD, Redemption is a period after your home has already been sold at a foreclosure sale when you can still reclaim your home. This definition is somewhat applicable to the tax sale process and varies depending on the state and whether or not a tax lien or a tax deed is sold.
A redemption period in tax sale investing is a period where a party of interest can pay off the delinquent tax amount plus interest and penalties as defined by the state to maintain interest in the property. As a general rule if a state has recorded a deed vesting the property to you after a tax sale, the redemption period has either expired or the state does not have one.
However, there are a few states such as Texas, Georgia and Tennessee where a county will hold a tax sale but will have an open redemption period following the tax sale. These states are typically referred to as Redeemable Deed states. In Georgia, an actual deed is recorded as soon as the property is sold at tax sale but an investor may not disturb the property, occupants or owners during the redemption period of at least 1yr and that redemption period is only closed after a non-judicial foreclosure process is completed; better known as barment. Other states, such as TN, may have an open redemption period after the tax sale but does not record a deed until the redemption period has expired. After the redemption period has expired, an investor has to go to the county and apply for their Clerk and Masters Deed. Remember when I told you about states using different types of conveyances, other than tax deeds, for properties sold for delinquent taxes?
Tennessee is a perfect example of a Deed state that has a redemption period and also uses a deed, other than a tax ded, to convey a property after a tax sale. Another example of how states differ in their tax deed process when it comes to redemption periods is Nevada. In Nevada, a tax deed is actually conveyed to the county for 2 yrs prior to the county selling the property to an outside or 3rd party investor. This 2 yr period of the county tax deed is the redemption period and it is before the property is actually sold to an investor so it does not impact the investor directly. The investor takes ownership of the property immediately after the tax sale and can do what they want with their investment.
Another great example is Florida. There is not a redemption period following the tax deed sale in FL. The redemption period in FL is during the preceding tax lien sale that we mentioned above. So when you buy a tax deed in FL, there is no redemption period and you receive a deed granting you ownership of the property.
You may be asking yourself why would you invest in a state where you cannot access or or sell your investment right away? Tax deed states or Redeemable Deed States that have a post-sale redemption period often have a very steep penalty for a party of interest to pay to satisfy their debts. In GA, the penalty is a flat 20% based on the bid-up amount at the tax sale. If the redemption occurs after 1yr, the penalty increases to 30%. In TX, the penalty on redemption can be either 25% or 50% depending on homestead status and the length of time of the redemption. Although you do not receive access to your investment, you could stand to make a great return in a short period of time.
There are a lot of regulations, statutes and laws that must be followed by a county and the investor for a tax sale to occur and property to be foreclosed. Redemption periods are put in place, not for investors to get rich, but to give any affected party enough time to understand their rights and to pay the delinquent tax debt. Ultimately, if the debt is not satisfied by the taxpayer or lienholder, the county will do what is necessary to get the property back into commerce.
Regardless of whether you obtained your property through a tax deed sale or were able to foreclose on your tax lien and obtain the property, you now have an issue with your chain of title. Since many states conduct what is known as a non-judicial foreclosure to grant you the tax deed or the property after a tax lien sale, this creates a cloud on title. This is because it is very difficult to verify if a county did in fact provide proper notice that meets the statutory requirements of the state. Whether or not the foreclosure is judicial or non-judicial, additional curative steps may be required to insure the chain of title.
Although not required by state statutes, a judicial quiet title action has been the historic solution to this problem. However, a quiet title action can become problematic for investors because they are costly and time consuming. The starting price for a quiet title can be anywhere from $2,500 to $6,000 depending on the state and take a minimum of 6 months with some taking in excess of 2 yrs. These factors can vary depending on the state, courts schedule and the number of affected parties in the suit.
Fortunately there is a solution to the pains of a quiet title action that is both faster and more cost effective. The Tax Title Services – Due Process Certification has qualified over 45,000 tax sale properties for title insurance over our 20+ yrs in business. Unlike a quiet title action, the Due Process Certification is a non-judicial process that verifies all redemption periods have expired and have been closed in accordance with state statutes and that the entire tax sale process is in compliance with all applicable state statutes.
The Due Process Certification is typically completed in 4-6 weeks and for a flat fee that is significantly less than a quiet title action. If you are in a hurry, there is also a RUSH service that can have your certification completed in 2-4 weeks depending on the state. Whether you obtained your property through a tax deed sale or a tax lien sale foreclosure, whether the state is judicial or non-judicial; Tax Title Services’ alternative to quiet titles is your fastest path to insurable title so you can maximize your profits and move on to the next investment.