Tax lien certificates are sold in many states as a way of collecting delinquent property taxes. You can purchase the certificates from the tax collector's office in the county where the tax-delinquent property is located. If you are a patient investor, this is usually a good investment because the statutory interest applied to delinquent property taxes is often between 10 and 12 percent.
County Tax Collectors
Find out where tax lien certificates are sold. Only 29 states sell tax lien certificates, with Arizona and Florida being the most prominent. California is one of the states where county tax collectors are not allowed to sell tax lien certificates. In states that allow the sale of tax lien certificates, you must look for sale information from the county tax collector. Sales usually take place once a year and are done by public auction.
Purchasing Tax Lien Certificates
Find the auction bidding requirements for tax lien certificates on the tax collector’s website. Register for the auction online by providing your name, address and other contact information. You will also have to complete an IRS W-9 form and submit a deposit, which is usually 10 percent of your anticipated bid or a required minimum. For example, Maricopa County requires a minimum deposit of $500, while Miami-Dade County requires a $5,000 minimum deposit. After completing the registration process, you will receive an access or ID number to use in the online auction.
When a tax lien certificate is sold, the property owner can redeem the certificate -- that is, pay the delinquent tax plus the statutory interest. The redemption time period varies by state. For example, in Arizona, a property owner has three years from the date of sale to redeem; in Florida, the property owner has two years. This is the waiting period that requires patience. All county tax collectors advise purchasers of tax lien certificates not to contact the property owners during the waiting period. Doing so can violate a state's debt collection laws and can result in you being barred from future tax certificate sales.
Tax Deed Sales
If the property owner fails to redeem the tax lien certificate by the state's deadline, your next step as purchaser of the certificate is to conduct a tax deed sale. This procedure will also vary by state. For example, Arizona law requires a lawsuit filed in the Superior Court to foreclose on the tax lien and acquire the deed to the property. In Florida, a tax deed sale is conducted at a public auction administered by the county clerk's office. Unless the property owner takes action during this process to redeem the tax lien certificates, the property will be sold to pay the lien. If there are no bidders to purchase the property, you will receive the deed to the property.
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- What Happens if You Purchase a Home at a Tax Lien Sale & There Is a Mortgage Lien Owed?
- How Do Courthouse Foreclosure Auctions Work?
- How to Invest in Tax Liens & Tax Deeds
- What Do You Have to Do to Pay off a Tax Certificate on a Home?