Today I’m answering your question, “What is a tax certificate sale?” and the topics I’m going to cover are:
- A Tax Certificate Is an Alternative Investment
- Tax Lien Certificates Are Issued for Unpaid Property Taxes
- How to Find and Purchase Tax Liens
- What Is the Redemption Period for Tax Liens?
- Acquiring Property Through Tax Liens
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A Tax Certificate Is an Alternative Investment
What is a tax certificate sale? It’s an auction where tax lien certificates are sold. A tax lien certificate is an alternative investment for thousands of investors nationwide. The investors are actually purchasing a tax certificate from the local county which will pay them an outrageously high interest rate.
Tax lien certificates are issued because the property owner from that local county has defaulted on their property tax, and the state and county require that property owners pay property taxes.
The tax lien certificate is a government lien, an encumbrance on the title of the property. A property cannot be sold, mortgaged or transferred until the tax certificate is satisfied which simply means that it’s been paid.
Tax lien certificates are issued by the local county treasurer and are available in over 1,500 counties.
Tax Lien Certificates Are Issued for Unpaid Property Taxes
For those who are wondering how all this works and plays out, local property owners are required to pay property taxes to fund the local government.
Local governments use the funds from property taxes to pay the county administrative costs for many government services, like funding schools, libraries, the hospitals, maintaining infrastructure, and paying county employees.
If the treasurer of the county does not receive a property tax payment, there will be a consequence. That consequence is a tax lien certificate which is a claim against the property filed with the county records and within the property records. A lien will be attached to the property.
After due process of law notices of default are issued and delivered to the property owner, the tax lien certificate will be issued.
How to Find and Purchase Tax Liens
What is a tax certificate sale and how does it work? To start with, the county publishes a list of tax lien certificates online and announces the list in the local newspaper. Keep in mind, over 1,500 counties sell tax lien certificates at public auctions. We are taking millions of certificates.
For example, Florida will post on the local county websites as many as 1 million certificates of properties in default each year.
The states that sell tax lien certificates pay outrageous interest rates. For example, the interest rates could be as high as 16% in Arizona, 18% in Florida, 24% in Iowa and 36% in Illinois.
All states have rules on how their auctions will take place. Laws are slightly different in each state and each county, however, they have been posted on the county website and listed in the newspaper. Do your research in order to act correctly at the auction.
What is a tax certificate sale? Is it a live auction, or an online auction? To purchase a tax lien certificate, you can attend a live auction, and many counties conduct their auctions online.
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What Is the Redemption Period for Tax Liens?
Tax lien certificates are considered a predictable, certain, and secure investment. However, you may be wondering, what happens if you don’t get paid?
According to many treasurers, over 95% of tax lien certificates will be redeemed. In other words, the defaulting property owner will come forward and pay the delinquent taxes plus the interest that has accrued. Most will redeem the tax lien certificate.
In some states, defaulting property owners are allowed as long as 2 years before the redemption period expires. In other states, the redemption period is as long as 3 years.
Each state and each county may have its own rules for redemption.
Acquiring Property Through Tax Liens
What is a tax certificate sale? Is it a way to acquire property?
Here’s an example. In Florida, the tax lien certificate holder has no right to the property during the redemption period. The defaulting taxpayer may remain on the property for 2 years, even though they are not paying property taxes and are in default.
After the 2-year redemption period expires, the tax lien certificate holder must request that the county re-auction the property at a tax-defaulted auction.
At that auction, the highest bidder wins and pays the money to the county. The county will then pay the original tax lien certificate purchaser 100% reimbursement of capital plus the interest on the certificate. However, if there is no bid for the property at the tax-defaulted auction, the original tax lien certificate buyer will now own the property.
Other states may allow a 3-year redemption period for the property owner in default to pay their tax lien certificate. If they don’t come forward and pay the amount of the certificate plus the interest, then the purchaser of the certificate can proceed with a foreclosure action and own the property.
We hope you enjoyed Ted’s lesson, “What is a Tax Certificate Sale?”
A tax certificate sale is a local government auction where property tax liens are sold. The winning bidder receives a tax lien certificate. These certificates pay interest rates of up to 36%.
If the certificate is not redeemed before the redemption period expires, then the certificate holder gets the property mortgage-free.
If you’d like to know more about tax delinquent property investing, Ted Thomas provides full support and complete training with home study courses, Q&A webinars, live tutorials, workshops, web classes, and personal coaching with certified coaches.
Learn how to reap huge rewards from tax lien and tax deed investing! Get started today by taking advantage of Ted’s Free Master Class! Act now, it costs you nothing and will give you a big head start!
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.