Tax Lien Sales

When bidding on a tax lien sale, you are not bidding on the deed to the property, but on the tax debt. Basically, you are loaning money to the property owner to pay his or her taxes. Usually, the respective county holds a public sale, such as an auction, for the right to collect on the delinquent taxpayer's debt. This can be a lucrative investment, as a property tax lien is usually sold for a small fraction of a property's market value. The purchaser pays the delinquent taxes to the county on behalf of the delinquent property owner. In exchange, the purchaser is given first lien position on title, ahead of mortgages, deeds of trust, and other private liens, secondary only to state tax liens. The purchaser then receives a certificate of purchase or a "tax lien certificate."

Under the terms of the sale, the investor has the right to receive interest penalty charges when the lien is paid off by the delinquent property owner, many times at a high rate of 16 to 24 percent. The purchaser also has the right to foreclose the tax lien and take title to the property if the lien is not paid.

Usually, tax lien investing is a win-win for the investor:if the delinquent taxpayer pays off the late taxes, the investor will receive the principal paid for the lien plus any interest that has accrued. If the late taxes are not paid by a specified date, the investor can foreclose and take title to the property.