Tax Deed Basics

11 Mar Tax Deed Basics

After writing many articles about the ins and our of Tax Delinquent Property Investing I keep coming across a large number of people who are confused between Tax Liens and Tax Deeds.

In this article I will go back to the basics and explain how this works.

In a few words it can be summarized as follows:

Tax Lien Certificates deal with a Financial Lien against a property. The owner of the property does not loose his/her property when such a TLC (Tax Lien Certificate) is issued.

Tax Deeds deal with the actual property. At a Tax Deed Auction the actual property is being sold and the original owner looses all rights to this property.

Background:

In the United States a lot of the services each state, county and municipality offers their residents is paid for through the collection not of Income taxes but instead of “Property Taxes” levied on any Real Property (meaning Real Estate including Raw Land).

Now what happens if a property owner refuses (or just forgets) to pay the property taxes on such a property? Obviously this strips the County/City/… of funds needed to pay for services like Police, Street work, Firefighters….

As a result in the US (vs. other countries where they have completely different systems), the States have given the counties the right to do one of two things.

1. Sell the outstanding property taxes to investors in exchange for several rights, amongst them
   1. The investor gets issued a Lien against the property (called Tax Lien Certificate)
   2. The Right to collect a high interest rate (usually between 12 and 24% but can be higher in some states)
   3. The Right to foreclose on the lien against the property (down the road) if the owner not redeeming the Lien
2. Sell the actual property at public auction. (called a Tax Deed Sale, or plainly a Tax Sale)

Now how can you make a profit from this!! Very easily!!!

1. You can go and attend the Tax Lien Auction and buy one or many Tax Lien certificates and collect a high interest rate until the owner pays off. If the owner does not pay off the Tax Lien Certificate in the Statutory Redemption period, you hit the JACK POT and can foreclose on the property and OWN The actual REAL ESTATE for only the back taxes you paid plus some foreclosure cost.
2. You attend the Tax Deed auction and buy a property there directly from the State for pennies on the dollar.
3. You follow my Proprietary method of buying Tax Delinquent properties directly from the Long time owners PRIOR TO AUCTION with Title insurance, FREE AND CLEAR for as little as $100 to $500