What Are Tax Lien Certificates?

As a homeowner, it's your responsibility to pay your property tax. This tax is imposed across the country by individual counties and cities, and failure to pay it results in penalties and late fees. Eventually, the tax collector might place a tax lien on your property for the amount of the unpaid taxes. In order to recoup the lost revenue, the tax collector holds an auction at which investors can pay off the tax bill in exchange for a tax lien certificate.

Property Taxes

The revenue generated from property taxes funds various projects in and around your community. Property taxes support public schools, roadway maintenance and public safety such as the police department. Counties and cities rely heavily on property taxes paid by the citizens. Property tax rates are determined by the tax collector and vary drastically across the country. Generally there's a base tax rate for everyone. Your home's value is then assessed by the taxing authority through its assessment process. The rate is applied to the assessed value of the home to reach your property tax bill. Bills are sent out at various times depending on where you live.

Tax Lien

If you don't pay your property taxes on time, the tax collector can place a lien on the property. Tax liens are filed on public record, which creates a hold on the property title, ostensibly giving the lien holder the ability to sell the property to settle the debt. However, it's not always so cut-and-dried. Most properties have an active mortgage loan against them. The mortgage lender is also a lien holder and in a superior position to any other liens. If the tax collector wanted to attempt foreclosure to seize the property, the mortgage lender needs to be paid off first. The mortgage balance is likely higher than the delinquent taxes, so to get around this, tax collectors hold tax lien certificate sales.


Each taxing authority conducts tax lien certificates in their own specific way. Most are held in an auction format, where people can bid on the certificates. The bidders are generally real estate investors; however, you don't have to be an investor to participate. The tax collector advertises the tax liens available for sale for the amount of the delinquent taxes before the auction. Some auctions happen in person, while others occur live on the Internet. It's common for the bidding to take place not on the amount of back taxes owed, but on the interest rate that will be charged. The winner of the auction is then issued a tax lien certificate and becomes a lien holder on the property.


The terms of the sale determine how long the homeowner has to repay the owed amount, plus interest. Though the length varies, it's usually a few years. If the homeowner submits the payment, the winning bidder is paid back the original investment plus the interest charged at the rate decided by the original bid. If the homeowner fails to make the payment within the designated time frame, the certificate holder can choose to seek foreclosure against the property. This can result in obtaining the deed to the property.


About the Author

Mallory Malesky has been writing business, finance and general knowledge articles since 2008. In her daily life, she works in corporate product management. Malesky holds a Bachelor of Science in natural science from Indiana University of Pennsylvania.