I get questions all the time about buying land at tax sale auctions. As one means of generating lost income from delinquent taxpayers, county governments offer Tax Sales at auction to the public. During Tax Lien Sales, what is purchased at these auctions is not land, rather a debt to be collected on. By purchasing the right to collect past due taxes, a buyer is in essence loaning money to the property owner to pay their taxes.
A Tax Lien, or Tax Certificate Sale is a public sale, usually at auction, of the right to collect on a delinquent taxpayer’s debt. This sale is held by the County, generally once each year. What is purchased by the winning bidder is not the deed to a property. The purchaser’s money 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 judgments, subordinate only to State tax liens.
Under the terms of the sale which may differ greatly from county to county, if the debt is not repaid with interest (rate determined at the time of sale) within a specified time period, the purchaser of the tax lien may foreclose upon the property, and all junior (subordinate) liens are dissolved, forgiven, or otherwise not the responsibility of the purchaser. In Arizona the maximum interest rate is 16%. Click here for an investing primer on Tax liens. By the way, if you google tax lien investing there is no shortage of websites looking to sell some program to teach you how to invest in tax liens for a princely sum. Basically, they will tell you it’s a great “secret way” to make 16-25% on your money. They won’t tell you about the inherent risks necessarily.
My take on Tax Lien investing… Skip it. You will make over 100% on tax deed investing. What is a tax deed sale? A Tax Deed Sale is a public sale, usually at auction, of the deed to the property of a delinquent taxpayer. The Owner and all lien holders have been given ample time and have received proper legal notification that the property will be sold if due taxes are not satisfied. Different than a Tax Lien Certificate Sale, the winning bidder purchases the deed to a piece of property, becoming the new owner and obtaining all rights to the property free and clear of liens, mortgages, deeds of trust, etc.
I have been to many tax deed sales and have flipped the property and made 100-300% returns consistently. The buyer is getting a great deal and since most people don’t attend raw land tax deed sales you can pick up lots and acreage for literally pennies on the dollar. I’ve seen property sold for $3 at a tax deed sale. Seriously.
Let me know if you want to learn more.
