What happens when you buy a tax lien property

When you buy a tax lien property, you are not buying the property itself. You are buying a lien certificate — a legal claim against the property for unpaid property taxes. The county or municipality sells these certificates to raise money while the owner still owes taxes.

Here is what you actually own after the purchase: the right to collect the unpaid taxes, plus interest and penalties, from the property owner. If the owner pays what they owe within a set period (called the redemption period), you receive your money back plus interest — typically 8 to 36 percent per year, depending on the state. If the owner does not pay during that time, you may have the right to foreclose and take ownership of the property itself, though this is a separate legal process that takes additional time and money.

The redemption period varies by state. In some states it is six months; in others it is three years. A few states have no redemption period at all, meaning you can foreclose immediately if the owner does not pay. You must know your state's rules before you bid.

Key Takeaways

  • Tax lien certificates are sold by counties or municipalities, usually at public auctions held once or twice per year, and you bid against other buyers to set the interest rate you will receive.
  • The redemption period — the time the owner has to pay you back — ranges from six months to three years depending on your state, and you must verify this before bidding.
  • If the owner redeems the lien, you receive your money plus interest; if they do not, you must file a separate foreclosure lawsuit to take ownership, which costs hundreds to thousands of dollars and takes months or years.
  • You must research the property's title, existing liens, and back taxes before bidding, because buying a lien does not may provide you will ever own the property or recover your money.
  • The county publishes a list of properties with tax liens before each auction, and you can request this list to identify which properties interest you.

How to find tax lien auctions in your area

Tax lien auctions are run by individual counties or municipalities, not by a central state or federal office. You must contact the tax assessor's office or tax collector's office in the county where you want to buy. These offices publish auction schedules and property lists, usually on their websites, though some still mail printed lists or require you to call.

Most counties hold auctions once or twice per year. Some hold them monthly. The schedule is set by state law and does not change, so once you know when your county auctions, you can plan ahead. The county will mail or email you a notice before each auction if you ask to be on their mailing list.

Before the auction, the county publishes a list of all properties with tax liens for sale. This list includes the property address, the amount of unpaid taxes, and sometimes a description of the property. You can request this list in person, by mail, or by downloading it from the county website. Some counties charge a small fee for printed lists; digital lists are usually free.

What you need to research before bidding

Buying a tax lien is a bet on the property's value and the owner's ability or willingness to pay. You must research each property before you bid, because the county does not may provide the property is worth anything or that you will ever own it.

Start by checking the property's title history. You can order a title search from a title company for $100 to $300, or you can search the county recorder's office for free to see what liens and mortgages are recorded against the property. If a bank holds a first mortgage, that bank will likely pay off the tax lien to protect its own interest — which means you will be paid back quickly but at a lower interest rate. If there are multiple liens (tax liens, judgment liens, HOA liens), you need to know the order in which they will be paid.

Next, verify the amount of back taxes. The county's auction list shows what is owed, but you should confirm this by calling the tax assessor's office or checking their online records. Ask whether there are any other unpaid taxes or penalties beyond what is listed.

Finally, research the property itself. Drive by it. Look up recent sales of similar properties nearby to estimate its market value. Check whether it is in a flood zone, has code violations, or is in an area where property values are falling. A property with $5,000 in back taxes is only a good investment if the property is worth significantly more than that.

How the auction bidding process works

Tax lien auctions are conducted by the county and are open to the public. You do not need a license or special permission to bid. Most auctions are held in person at the county courthouse or tax assessor's office, though some counties now offer online bidding.

The bidding process varies by state and county, but the most common method is the interest rate bid. The county opens the bidding at the full amount of unpaid taxes, penalties, and costs. You bid against other buyers by offering to accept a lower interest rate on your money. The buyer who bids the lowest interest rate wins the lien. If no one bids, the county may take the property itself or hold it for a second round of bidding.

Some counties use a premium bid system instead. In this method, you bid the amount you are willing to pay above the tax debt. If you bid $2,000 and the taxes owed are $5,000, you pay $7,000 total. You receive the standard interest rate set by state law, but you do not recover the premium you paid unless the owner redeems.

Before the auction, you must register with the county and may be required to show proof of funds or a cashier's check to demonstrate you can pay if you win. Bring a valid ID and be prepared to pay immediately or within a few days of winning. The county will issue you a lien certificate as proof of ownership.

What happens after you win the bid

Once you own the lien certificate, you wait. During the redemption period, the property owner can pay you the full amount owed plus interest and costs. If they do, the lien is satisfied and you receive your money. This is the most common outcome — most tax liens are redeemed.

If the owner does not pay during the redemption period, you have the right to foreclose. Foreclosure is a separate legal process that requires you to file a lawsuit in the county court. You must hire an attorney, file court documents, serve the owner with notice, and wait for the court to schedule a hearing. If you win the foreclosure, the court issues a deed transferring the property to you. This process typically takes three to twelve months and costs $1,000 to $5,000 in legal fees and court costs.

Even after you foreclose and receive a deed, the property may not be yours free and clear. If there is a mortgage on the property, the bank may have the right to reclaim it. If there are other liens (judgment liens, HOA liens), those may need to be paid before you own the property outright. You must understand the lien priority in your state before you bid.

In some cases, the owner may file for bankruptcy after you foreclose, which can delay or prevent you from taking ownership. The property may also have code violations, unpaid utilities, or environmental problems that become your responsibility once you own it.

The costs and risks of tax lien investing

Buying a tax lien is not the same as buying a property at a discount. Your actual costs include the lien purchase price, plus recording fees, plus legal fees if you foreclose. If you foreclose, you may also owe property taxes, utilities, code violation fines, and repairs before you can sell the property.

The biggest risk is that you never own the property at all. If the owner redeems the lien, you get your money back with interest, but you do not own anything. If you foreclose and the property is worth less than your total investment, you lose money. If the property has environmental contamination or structural problems, you may inherit liability even after you take ownership.

Another risk is that the redemption period is long. In some states, you wait three years to know whether the owner will pay. During that time, your money is tied up and you earn no income unless the owner pays early. If the owner never pays and you must foreclose, you wait another year or more before you own the property.

Tax lien investing requires patience, research, and cash reserves. It is not a way to buy a home at a steep discount. It is a way to earn interest on money you lend to property owners who owe taxes, with the possibility of owning property if they do not repay.

Frequently Asked Questions

Can I buy a tax lien property if I have bad credit?

Yes. Tax lien auctions do not check your credit. You must have cash or a cashier's check to pay for the lien at the auction, but there is no credit requirement. However, if you plan to borrow money to buy liens, you will need to work with a lender, and they will check your credit.

What if the property is in another state?

You can buy tax liens in any state where you can attend the auction or bid online. However, each state has different rules about redemption periods, foreclosure procedures, and interest rates. You must research your state's specific laws before bidding. Some states are more favorable to lien buyers than others.

Do I have to pay property taxes on the property while I own the lien?

No. The property owner is responsible for property taxes while they own the property. Once you foreclose and receive a deed, you become the owner and must pay property taxes going forward. If the property has unpaid taxes beyond the lien you bought, you may need to pay those to protect your investment.

Can the owner force me to foreclose?

No. The owner cannot force you to foreclose. If they do not redeem the lien and you do not want to foreclose, you can simply hold the lien certificate and collect interest if the owner eventually pays. However, you will not own the property unless you foreclose.

What if someone else has a lien on the same property?

Liens are paid in order of priority. A first mortgage is paid before a tax lien. A tax lien is usually paid before a judgment lien. You must research the lien priority in your state and check the county records to see what other liens exist. If you foreclose, you may have to pay off higher-priority liens to take clear ownership.