In this interview, Ted explains the right of redemption and how it applies to tax liens, tax deeds, and redeemable deeds. Ted Thomas has been involved in the tax delinquent property business for over 30 years.
The topics to be covered in “Right of Redemption: What You Need to Know” are:
- What’s Redemption in Real Estate?
- Georgia Tax Sale Redemption Period
- Texas Tax Sale Redemption Period
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What’s Redemption in Real Estate?
When real estate owners don’t pay property tax, the county will ultimately seize the property if the taxes remain unpaid. Different states have different processes for collecting property tax on defaulted properties.
Some states offer a right of redemption, and some states do not. Right of redemption means that the tax defaulted property owner could still recover the property after the auction by paying the delinquent back taxes that are owed plus a high interest rate or a penalty.
Property Redemption in Tax Deed States
Tax deed states will seize the property and sell it to the highest bidder at a tax defaulted property auction.
There is no redemption period in a tax deed state. Once sold, the previous owner cannot redeem the property.
Property Redemption in Tax Lien States
Tax lien states will issue a tax lien certificate, which allows the tax defaulted owner to remain on the property with a specified period allotted to pay the delinquent property taxes plus interest. This redemption period could be a year, 2 years or 3 years, depending on the state.
Tax lien investors will pay the back property taxes on behalf of the tax delinquent property owner. The payoff is that the investor who holds the tax lien certificate will either receive back all their capital plus a high rate of interest, or if the certificate is not redeemed, get the property without a mortgage.
Property Redemption in Redeemable Deed States
Redeemable deed states are a hybrid of tax lien and tax deed states. The county will auction the deed, not a certificate, to the highest bidder. However, the tax delinquent property owner has an opportunity to redeem the deed from the investor who purchased the deed.
Redeemable deed states are tax deed states with the exception that the tax delinquent property owner has the right of redemption.
Let’s talk more about redemption of property in redeemable deed states with specific examples.
Georgia Tax Sale Redemption Period
Georgia is a redeemable deed state with a redemption period of one year. The tax delinquent property owner can exercise their right of redemption by paying the redeemable deed investor all of their money back plus a 20% penalty.
The difference between an interest rate and a penalty is significant. An interest rate is annualized, and a penalty is not.
Whether full payment for the redeemed real estate is received on day 1 or day 365, the penalty will still be 20%.
Texas Tax Sale Redemption Period
Like Georgia, Texas is also a redeemable tax deed state, however, Texas only gives the defaulted property owner 180 days to redeem the deed.
The penalty in Texas is 25%. If the property is redeemed, whether on day 1 or day 180, the winning bidder at the auction will receive all of their money back plus 25%, and the check comes from the county.
If the property is not redeemed, then the winning bidder becomes the new owner and receives the deed to the property from the county.
Conclusion
There are 3 basic types of tax delinquent real estate auctions, tax lien, tax deed, and redeemable tax deed. Tax lien and redeemable tax deed states offer tax defaulted property owners the right of redemption, while tax deed states do not.
For tax liens and redeemable deeds, the redemption period varies per state. In Georgia it’s one year, while in Texas, it’s 180 days.
The rate of return varies as well. Tax lien states pay interest rates of 16%, 18%, 24%, or even as much as 36%. Redeemable deed states have penalties rather than interest rates.
If you want to learn more about tax liens and deeds, view more of Ted’s free videos.
Ted is the authority on the subject of tax lien and tax deed investing and has been teaching students how to buy and sell bargain real estate for over 25 years.
If you want to have a free auction list of tax defaulted properties that are currently for sale, go to TedThomas.com/freegift. See the great deals for yourself.
Transcript of
Right of Redemption: What You Need to Know
Randy: I’m here again with Ted Thomas, and it’s always good to see you, Ted. If you didn’t know it already, Ted knows everything about tax lien certificates and tax auctions. He’s the authority on all of this and has been doing it for a lot of years. Ted, you’re the person to turn to for this.
Randy (cont’d): It’s a bit complicated, but I’ve heard about redemption periods and the right of redemption. How does that relate to tax defaulted properties? What is right of redemption all about?
Ted: Right of redemption confuses a lot of people. Let me make it as simple as I possibly can. If a property owner does not pay property tax, the state will authorize the local county to do something about that.
Ted (cont’d): The county will levy the tax. If they can collect the tax, great. If they can’t, the county’s going to confiscate the property. In other words, they’re going to take the property away from that property owner.
Ted (cont’d): So now they’ve taken it away. In certain states, they will allow a right of redemption. That doesn’t have anything to do with the church. Right of redemption simply means that the property owner could come back and redeem, recover their property. The property owner redeeming their property can be very beneficial to you if you’re an investor.
Ted (cont’d): We’re talking about right of redemption. The local government has taken a property, but that state allows a redemption. Let’s use Georgia as an example.
Ted (cont’d): In Georgia, they have one full year to step forward and pay all of the tax plus 20%, then they can get their property back. The property owner can redeem their property, but the person that actually bought it gets all their money back, 100% of their capital, and a 20% return.
Ted (cont’d): An investor can make a minimum in Georgia of 20%. If you want to go down to the bank and invest money in a certificate of deposit, you’re paid 1% or 2%. You can go to Georgia and buy redeemable deeds. They have a right of redemption, and you would make 20%. Would you like to hear something better than that?
Randy: Sure would. Hit me.
Ted: If you go to Texas, they have 254 counties in Texas. Every county is authorized to have an auction every month. When the property is sold at auction by the county, the property owner has 180 days to redeem it.
Ted (cont’d): In 180 days, that property owner can come forward and pay the person that bought it at auction 100% of their money back plus 25% and get their property back.
Ted (cont’d): In Texas, the minimum you would make if you bought at a tax auction is 25%. Where can you make 25% on your money? And the check comes from the government.
Randy: That is a heck of a return, Ted. I can see how it’s appealing. Everything is bigger in Texas, right? Even the money you can make on tax defaulted property. To be clear, are Georgia and Texas tax lien or tax deed states? Or hybrid states? I know you’ve talked about how different states are one way or the other.
Ted: They’re tax deed states. It’s a right of redemption on a deed. When you raise your hand and buy at a tax auction, I didn’t say a tax lien auction. When you’re buying tax defaulted property, you’re going to get a deed to the property from the county.
Ted (cont’d): The county is going to issue you a piece of paper that says you own this property. However, that property owner can give you 100% of your money back and a 25% return. Then you have to give them the deed to the property. They now own their own property, but you made 25%. I’ll take 25% all day every day.
Randy: This is interesting. To be clear, it’s 25%. You’re going to get all your money back plus 25%. In other words, let’s just make this simple, I’m bidding on a property I could get for $50,000, but somebody out bids me. I end up paying $100,000.
Randy (cont’d): Let’s just say I do that. Then the owner comes back before the year is up or six months depending on the state, and they’re going to give me $100,000 plus $25,000? That’s 25%.
Randy (cont’d): Am I correct? In that case, it’s not necessarily bad that the bidding goes higher. My reason for asking this is because if Texas and Georgia have these incredible returns, it seems like they’d be really popular.
Randy (cont’d): A lot of people who are into this business would want to do it in Texas and Georgia, which I would imagine means there are more people bidding on houses and driving the bids up. Is that correct?
Ted: Randy, I want you to just sit there and watch. I’m going to show you a video of a guy that’s a student of mine. He’s done over 100 deals just in Georgia. Watch this.
Randy: Wow. Well, holy cow, Ted, I can see why those two states are so popular. That’s quite something. It shows what can happen when you’re kind of smart, and you think about this business and know where to go, how to go after the properties and check them out and all the things you teach.
Ted: The beauty of all this, Randy, is every month we have a virtual workshop. For $47, people can show up at that workshop and spend from 11 in the morning until five in the afternoon and learn all the details of what we’re talking about and see the people doing it.
Be sure to get your Free Gift from Ted today.
Ted Thomas is America’s Leading Authority on Tax Lien Certificates and Tax Deed Auctions, as well as a publisher and author of more than 30 books. His guidebooks on Real Estate have sold in four corners of the world. He has been teaching people just like you for over 30 years how to buy houses in good neighborhoods for pennies on the dollar. He teaches how to create wealth with minimum risk and easy-to-learn methods.
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