Real Estate Tax Liens and Tax Deeds

April 7, 2007 by

Did you know there are two different types of tax states? It’s true. About 50% of the states are tax lien states, and the other half are tax deed states. States like California and Texas are deed states while Arizona and Florida are lien states.

So what’s the difference? A tax lien state is one where lien is filed on a property by the local jurisdiction for failure to pay the property taxes. So if you’re an investor who ends up buying that lien, you do not own the property. Instead, you only have a lien on the property and you’re waiting for the owner to pay the taxes that are past due. With this you receive interest or any other penalties which can end up being a nice rate of return on your investment.

A tax deed is very different than a tax lien. If you buy a tax deed at a sale, you own the property from that day forward. Once you get the deed you can do whatever you want with the property let it be renting it out, reselling it, or even living in it. The likelihood of you purchasing a tax deed of sale on a property that’s worth buying are pretty slim. Just think, if this was your property would you let it go this far to the point where someone could just buy your tax deed and own your property outright? I don’t think so.

At most tax deed sales, you’ll find many vacant lots including a number of worthless lots containing a regular or small parcels. Because of this, it’s always imperative for you the investor to actually see the property before making a bid. Investors at the sales by such properties knowing that they will require a fair amount of work and require cash upfront for the repairs.

So how do you go about getting started in real estate tax liens? Most lien states will have an annual auction and you’ll need to contact a specific county to find out the exact date. Some of these auctions you could actually participate online such as www.bidorangecounty.com which is a good option so you can participate in the comfort of your home. I’d start by better understanding how tax liens really do work vs the comparison I just provided. Sites like www.taxliens.com are a good place to start.

Remember that you’re really buying a tax lien for rate of return and not necessarily for the actual property. However, if the lean does not redeem, you may get the property for little more than one or two years of back property taxes. Think of it as a bonus if you don’t get the rate of return you originally planned on. The situation in his very rare but it occasionally does happen. I have personally never invested in tax liens and would be interested in any stories you may have. Please comment below to share your experiences (good or bad).

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8 Responses to “Real Estate Tax Liens and Tax Deeds”

  1. Veliko Turnovo Hills on October 11th, 2007 9:22 pm

    We love this blog! It is the best real estate information portal for retrieving property records online

  2. Edward Balcsik on April 9th, 2008 8:23 pm

    As an attorney in Chicago with a practice concentrated in real estate I frequently run across this misconception. Illinois is a Tax Lien state and thus you are buying a lien on the property with the possiblity you will foreclose the lien and then own the property. Thus, in Illinois, as in other tax lien states it is imperative to understand the timeline and process. Especially important is what happens if the tax payers redeems or payoff the lien. What do you get? Is this is rational return on your investment?

    If the taxpayer does not redeem how long will it take to get a tax deed? How much will it cost? Understanding these issues will help you determine if it is a sensible investment.

  3. Truth on March 22nd, 2009 3:36 am

    O.K. So what happened to this elusive
    bidorangecounty.com website ????

    Looks like the pros don’t want any
    competition from the rest of the crowd.

  4. Tax Lien Investing on May 6th, 2009 2:56 am

    Investing in TLC still a great investment

  5. TaxLienInvestor on July 12th, 2009 10:52 am

    I’ve found a great new website that gathers all the information I need for investing in tax liens/deeds. tax-lien-database.com has the state and county laws for over 700 counties (and growing) nationwide. It included direct links to state and county websites as well as lien/deed listings. Theyâ��re also in the process of building an online â��supermarketâ�� where I can buy tax liens/deeds â��over the counterâ�� directly from counties or from other investors!

  6. Tax Liens on October 19th, 2009 10:09 am

    Can I suggest other site over Tax Liens? Click on the link

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  8. Paula Eland on November 6th, 2011 9:21 am

    thank you for this article. Tax liens and tax deeds are crucial part of real estate investing and this online websites offering these documents are huge help for home buyers and sellers. tax-lien-database.com is a useful database. and very accessible.

    please visit: Sugar Land Homes for Sale

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