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How Does the Tax Deed Process Work

How Does the Tax Deed Process Work

The tax deed system is extremely similar to the tax lien system, but the investments are offered at another point in the certificate county's timeline. The term “tax deed” refers to granting ownership of a property to a government body when the owner fails to pay property taxes. A tax deed will allow the government to sell the property to collect the taxes that are due. Once sold, the property is transferred to the buyer. These legal transactions are called “tax deed sales” and are held at auctions both online and in person.The county depends on property taxes to support the fire department, the police department, roads, schools, etc. When property owners fail to pay property taxes, the county is left in a difficult position. They have to try and replace their primary source of income. Instead of raising taxes for those that pay, they made a great system that allows investors to loan money to the county in exchange for assets. The county will then issue a tax lien on the property to keep the property owner from selling their property and creates a tax lien certificate with a state-mandated interest rate to sell to investors. They give the delinquent property owner a certain amount of time, usually one to three years, to pay back property taxes to the county.

As a reminder, the property owner does not write a check out to the investor, but to the county. The county issues the first notice of a property that has defaulted and announces the sale of the tax lien certificate. The property owner is notified that there will be a penalty for paying property taxes late. When the property owner pays property taxes and their penalty to the county, the county delivers a check to the investor for the investment plus the interest built up to that point. If the property owner fails to pay during the redemption period, the investor has the opportunity to take ownership of the property through the foreclosure process.

Tax Deed Process

Tax deeds legally transfers ownership to the new buyer on the condition that the buyer must pay the amount owed within 72 hours, or the sale is canceled.

In California, claims must be filed within one year, while the deadline in Texas is two years. In Georgia, you can claim funds within five years after sale of a tax deed certificate. At that point a court order is required to retrieve excess funds.

The county does not sell a certificate with an interest rate to tax deeds, but sells the deed to an already foreclosed property. When the property owner is delinquent, the county issues a delinquency notice and issues a tax lien to the property, so the property cannot be sold. The county allows the property owner a set time to pay off their property taxes. The redemption period starts when taxes are due. If taxes are due April 1, and the redemption period is two years long, the property owner would have until April 1 due to the penalty increase. If the property owner completes payment for the taxes and liability, the county keeps the money and moves on. If the property owner fails to pay during the redemption period, the county begins the foreclosure process. The county takes control of the property through foreclosure and announces its sale.

The county makes a public notice of the auction: in the newspaper, on the county office bulletin board, or their website. Educated investors show up and start bidding on tax deed properties. Bidding begins at the amount of the delinquent property taxes and goes up according to the competition. Depending on the number of investors interested in that particular property, the property can go for low prices. The winner walks away with a tax deed to the property and a big smile.

Some states will sell the title to the winning buyer on the day of the tax deed sale auction. Others will allow a redemption period. During this time the original owner can repay their debt and redeem the property. If the owner pays their debt within the allotted time, they must pay the winning buyer the amount bid at the auction plus interest, which can sometimes be high. But if the redemption period passes, and the owner still does not reclaim their property deed, the highest bidder can foreclose on the property.


The primary differences between tax liens and tax deeds are tax liens are usually long-term investments and tax deeds are short-term investments. Tax liens are very similar to tax deeds, but there are differences. Tax deeds complete the ownership process of property itself to a new bidder. While tax liens are an actual legal claim against the property when the taxes aren't paid in due time. Tax liens provide a solid investment for investors with a rare thing in the investing world: guaranteed ROI (return on investment). Liens can be as low as a few hundred dollars and pay simple interest that accrues monthly. 


A state government places a lien against a property if its owner does not pay property taxes on time. These taxes, which prevent owners from doing anything profitable with the property, are actually sold off at auction rather than the property itself. Those interested can invest in these liens by placing a bid for them. The return will be calculated with a maximum rate of interest allowed by the city or state. When a property owner first begins to default on their property, the city will send a notice advising them about the upcoming lien. If the owner doesn't pay, the tax certificate will then be sold at auction. The lien will then be owned by the highest bidder, who pays the outstanding tax amount to the municipality. To remove the lien, the owner must pay the new lien owner the due amount plus interest.


You can get into tax liens at lower prices than tax deeps; for tax liens, you get a certificate with the promise of an interest rate, and with tax deeds, you get the property. Tax deeds are inspiring since it is possible to get outstanding deals since the bidding starts so low. Once the property is finally sold, properties acquired from a tax deed sale will have what is called a “cloud” on the title, meaning the property can not be conveyed until the defect is cured or resolved. 


This can be done in two ways: Filing a quiet title action, a lawsuit that establishes the buying party's title or claim in the property, effectively silencing all claims to the title (such as a mortgage of the prior owner). A quiet title action can cost up to $3,000 depending on the state and can often take several months to complete. One must order a title certification with a tax title curative consultant and confirm the sale and tax foreclosure process's correctness. After verifying everything, one can work with a title insurance agent. This will effectively clear the property's title. The entire process can be done in as little as one month and usually costs $1,500 to $2,250.

Before Buying Tax Deeds

Sales of properties by tax-distressed owners can be a very good deal. With that said, you'll need to find out if your real estate investing opportunity is going to be worth it. Check the property location beforehand, because you might be buying something worthless, like purchasing a piece of land that is routinely flooded. If you are able to acquire and own a piece of land legally, you can participate in property auctions as well. But, you'll have to have cash on hand or in easy access, because auction sites will usually require that those who win the bidding on their chosen properties to pay a down payment or the full amount in a short span of time, if not cash up front. This is not an investment to be made for those without capital.

Most counties hold tax lien auctions on an annual basis. You'll want to contact your local county to find out when their tax lien auctions are held so you have time to prepare. In particular, you will want to learn about how the county conducts its auctions, including requirements for bidding. 

These days, most counties and other municipalities hold tax lien auctions over the internet. Typically, you have to register ahead of time for the right to participate in the online auction. You can expect to pay a registration fee for this, so it's important to factor in calculating how much you stand to make. The fee varies from place to place but is usually around $100.

Once you're registered, you will be assigned a bidding identification number and given login information. When the auction starts, you will be able to bid on the certificates that interest you. Counties typically release lists of the tax lien certificates available for auction a few weeks beforehand. It's crucial to obtain this list and investigate it carefully. That's because you need to perform due diligence to ensure that the certificate is worth your while. Most of the time, this involves finding out the condition of the underlying property.

After obtaining the list, whittle it down to options that look the most promising to you. First, set a budget, and then eliminate any certificates that exceed it. Next, choose a property type to focus on. For example, if you are mostly interested in interest income, you'll want to focus on tax lien certificates on single-family homes with mortgages. Some investors choose to focus on commercial properties or on undeveloped land. There are pluses and minuses to all of these options, so it's vital to learn the ins and outs before getting started.

While buying tax deeds can certainly be profitable, it can also pose some risks if not done correctly. There are several things to know about and research before bidding on a property at a tax deed sale. Below are a few essential items to take care of.

When you purchase a tax deed, you are buying a property without getting inside in most instances. It is possible to assess the property's condition from the exterior, but in general, you will be able to see the interior condition. Because of this, some tax deed investors assume the property is in poor condition when assessing the value of the property using those that are nearby properties. If the property is in better shape than anticipated, the discount will only increase.

Those new to tax lien investing should be wary of getting into bidding wars and overpaying for the value of a property. Once you've established a verifiable property value, it's pertinent to determine the maximum amount you want to pay for the property, considering the possible work it needs or the rental income you could collect. 

You may want to also set your maximum bid at a percentage of its as-is value. Regardless of which methodology you use, if you are an experienced investor, you will go into the auction knowing your absolute maximum bid. If the bidding exceeds that price, pull in the reins. One of the biggest issues you need to avoid in tax deed investing is accidentally overpaying for a property.

A great deal of the success you can derive from tax lien investing has to do with locating diamonds in the rough. With Marketplace Pro software, you can quickly and easily identify properties offered in county auctions. You can learn more about Marketplace Pro by contacting us today and scheduling a demonstration.

About The Author


United Tax Liens is a group of experienced, active investors providing everyday people with access to one of the best Real Estate Investment vehicles available today.

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