How Does a Municipal Tax Sale Work?

While the only certainties in life are death and taxes, what happens after death is a matter of speculation. What happens after you don't pay your property taxes or utility bills is no mystery -- a lien is sold at a municipal tax sale. While the particular laws may vary by state, the bottom line is that municipalities must recoup money from unpaid taxes by selling tax-sale certificates to the highest bidder.


If your property taxes or utility bills are not paid, you should receive a notice of delinquency from the appropriate municipal agency or utility authority. You also receive a notice of interest due on the unpaid balance. If you do not pay the bill within a certain time frame, generally one year, or arrange for installment payments, the property is subject to a tax sale. Municipal officials notify your mortgage lender and any lien holders on the property about the delinquency.

Tax Sales

To proceed with the tax sale, the municipality runs a notice in the local newspaper advertising all properties subject to sale, the amount of money owed and the sale date. The actual title to the property isn't sold. Instead, the highest bidder at the sale purchases a lien, also known as a tax-sale certificate. However, there's a possibility the winning bidder could own the property down the road, so do some research about the parcel before placing a bid, if you're on that side of the equation.

Liens and Certificates

Because of their high interest rates, tax-sale certificates are attractive to certain investors. Depending on the jurisdiction, these certificates can earn as much as 18 percent in annual interest. If you are the winning bidder, you will receive the accrued interest on the lien when the property owner pays up. If you are the property owner, that 18 percent interest is an additional amount you have to pay to redeem your property. The tax certificate holder also has the option to pay current taxes on the property during that time period. Since not paying subsequent taxes due means that the property can go up for auction again at the end of a specific time period, most tax certificate buyers opt to pay the tax.

Redeeming Your Property

Once your property is sold at the tax sale, you have a certain period, usually at least one year from the sale date, to repay the taxes, fees and any accrued interest. If you haven't paid up by that date, the municipality issues a tax deed to the individual or entity who purchased the tax lien. Similar to how the process works with a quit-claim deed, that person must pay the balance due for taxes and any other applicable tax for property transfers. That person then becomes owner of the property.

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