How A County Tax Lien Sale Works

 

In order to recoup lost tax revenue from delinquent taxes, the county tax office has the legal right to lien (or seize), the property and either sell it, or the lien itself, to a third party investor. County governments depend on revenue from local real estate taxes to pay for much-needed community services such as fire, police, ambulance and hospital services, as well as public schools and playgrounds. When taxes go unpaid, the local governing authority must get the capital back somehow. They lien the property in an attempt to get what is owed.

Laws and policies regarding tax lien sales vary from county to county and state to state. The best way to find out about your area's specific rules is to visit the county courthouse and/or tax office for details. They explain each procedure clearly for both buyers and delinquent homeowners.

Most counties hold either quarterly or monthly tax lien sales at a pre-disclosed location (usually at the county court house). Larger municipalities may hold sales more often, and some may only hold one sale a year.

Once an investor finds out when the next sale is scheduled, he may obtain a list of properties from the tax office. Keep in mind that little (if any) information about listed properties is offered at auction time. Most parcels are brought for bid with little more than a lot number. An uneducated buyer may actually bid on a property without knowing if it's an actual house, or just a vacant lot. Property inspections are rarely allowed either before or during the sale.

Savvy investors take the time to investigate the property as much as possible prior to sale day. Although they will be unable to actually inspect the property, they can drive by and look for obvious flaws from the street. What problems lay inside remains a mystery until after the sale.

On the day of the auction, potential buyers are required to register with the "auctioneer", with proof that they either have the cash in hand to bid on tax liens during the sale, or a certified bank letter saying they have available funds in the bank. Final payment is usually due within 2-48 hours.

Once the sale begins, buyers should be aware of what type of lien is being sold: a tax lien certificate (which requires the bidder to pay off the tax debt that day, but gives the current owner the opportunity to pay it back, with interest, within a set period of time and retain ownership. If an owner fails to pay the new debt on time, the lien certificate holder can then take possession of the property); or a tax lien deed, which allows the bidder to buy the property outright for the final bidding amount.

Most tax lien sales follow one of the following auction methods:

  • Bidding Down The Interest - in which bidders bid the lowest amount of interest they are willing to accept on a tax lien certificate
  • Random Selection - in which tax liens are offered to randomly selected bidders one at a time for the total amount of tax due. As bidders refuse properties, a new bidder is randomly selected
  • Over the Counter Sales - are often used for tax liens that have already been offered at auction, with no takers. Over the counter sales allow investors to forgo the auction process and purchase the tax lien straight from the county tax office.

County tax lien sales differ from state to state, and often county to county, making it very important for investors to learn all the rules and laws pertaining to their specific area.