In “What Is the Redemption Period for Tax Liens?” the topics we’ll be discussing are:
- Is Buying Tax Lien Certificates a Good Investment?
- How Long Is a Tax Delinquent Owner Given to Redeem the Property?
- What Are Redeemable Deed States and How Are They Different?
- Learn More About Taking Possession of Tax Sale Property
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Is Buying Tax Lien Certificates a Good Investment?
Depending on the state where you invest, tax lien certificates pay interest rates of 16%, 18%, 24%, and even as high as 36%. These high rates of return make tax liens an excellent investment to consider if you’re looking for a hedge against inflation.
When you purchase a tax lien certificate, what you’re buying is the tax lien on the property, which means you get the property if the tax lien isn’t paid.
You either receive the high rate of interest, or you end up owning the property. The state’s property tax code ensures this. Additionally, if you get the property, you get it without a mortgage or deed of trust loan. These encumbrances are extinguished by the county government when you receive the property.
All of this makes tax liens one of the few high-yielding investments that’s also low risk. Just make sure you’ve adequately researched the property before you invest in the tax lien so that you know what you could end up owning. However, 95% to 97% of the time, the tax lien will be redeemed. “Redeemed” means that it will be paid before the redemption period expires, and you’ll receive all of your capital back plus the high rate of interest.
How Long Is a Tax Delinquent Owner Given to Redeem the Property?
How long is the redemption period? Tax lien redemption periods vary depending on the state.
Here are a few examples.
In Florida, which pays an interest rate of up to 18% on tax lien certificates, the tax delinquent property owner is given 2 years to redeem. If the property is not redeemed, the tax lien certificate holder can request that the county hold a tax deed auction where the property will be sold to the highest bidder. Once the property is sold, the tax lien certificate holder will be paid all of their money back plus the interest. However, if no one bids on the property, then the tax lien certificate holder will become the new property owner.
In South Carolina, the redemption period is only 1 year. If the property owner fails to redeem, the tax lien certificate holder doesn’t need to do anything. The county will send the certificate holder the tax deed.
In Arizona, the redemption period is 3 years. The property owner must pay every year of delinquent back taxes plus interest, and if not, then the certificate holder gets the property.
What Are Redeemable Deed States and How Are They Different?
Redeemable deed states are hybrids. In redeemable deed states, like Georgia and Texas, the county auctions the deed rather than a tax lien certificate. However, the deed is a redeemable deed, which means the tax delinquent property owner is able to redeem the property by paying the winning bidder back all of their money plus a penalty.
In Georgia, the penalty is 20%, and in Texas, it’s 25%. The difference between a penalty and an interest rate is that an interest rate is annualized, and a penalty is not. Whether the property owner redeems on day 1 or day 101, the full penalty must be paid.
For example, if you purchased a redeemable deed in Georgia and the property owner came in 3 days later to redeem the deed, you’d get all of your money back plus 20%.
The redemption period for a redeemable deed in Georgia is 1 year. In Texas, it’s 180 days. Therefore, if the property owner doesn’t redeem in 180 days in Texas, then you get the property.
Learn More About Taking Possession of Tax Sale Property
If you want to learn more about tax lien certificates and redeemable 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 the ins and outs of buying and selling tax delinquent properties 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.
Conclusion
We hope you enjoyed “What Is the Redemption Period for Tax Liens?”
The redemption period varies depending on the state. For example, in Texas, the property owner has 180 days to redeem the property. While in Arizona, the redemption period is 3 years.
Do all states have redemption periods? No, tax deed states, like California and New York, have no redemption period. In tax deed states, real estate is seized and sold at auction to the highest bidder, and sales are final. Once the property is sold, the tax delinquent property owner has no right of redemption.
In tax lien certificate states and redeemable deed states, there is a redemption period. The tax delinquent property owner has a specific time frame to pay you back all the money you invested plus a penalty or high rate of interest or lose the property to you.
If you want to end up with the property, is there any strategy to purchase a tax lien that’s less likely to be redeemed? One strategy is to purchase a tax lien on a property with an out-of-state owner. The tax bills and notices of default are sent to the tax defaulted property, not to the address of the property owner living elsewhere.
Another strategy is determining if the property owners are divorced. A divorce can cause a lot of confusion over which spouse should be paying the property taxes. These are just two strategies. Ted can show you more.
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Video Transcript For:
What Is the Redemption Grace Period for Tax Liens?
Randy: Well, he’s the authority on tax lien certificates, and we’ve been talking all day about various subjects, tax deeds and such. Of course, it’s Ted Thomas. Hey, Ted, question, what do investors who get into tax liens need to know about the certificate redemption period? What is the redemption period for tax liens?
Ted: All right, now we’re not talking about redemption in the religious term. We’re talking about redemption, meaning that people will come in and pay their taxes. So let me give you a couple of examples. You never want to spend any time at any auction without reading the rules. If I pick up an auction list like this, the front pages will always have the rules. They’re written in plain English. You need to read the rules.
Ted (cont’d): Let me give you some ideas. Here in Florida where I live, if you went to the auction and raised your hand to buy a certificate, they would sell you a certificate, which is nothing more than a piece of paper. When you got that piece of paper, you gave your money to the government. Now you wait. You’re waiting. That’s the redemption period.
Ted (cont’d): The person that you paid the taxes for has a redemption period of two years in Florida. In other states, it could be longer than that. For example, in Arizona, they will allow them three years to come in and pay, and they have to pay all those years in taxes. They have to get them all paid in the three years. If they don’t get it paid, then you’re going to get the property.
Ted (cont’d): So the redemption period can be different in different places. For example, in Georgia, the redemption period is one year. You raise your hand, and you actually buy a redeemable deed. They have one year to redeem it. Redeem it just means they’re going to come in and pay, nothing confusing about that.
Ted (cont’d): Not all states have redemption. People will call me up and say, “What’s the redemption period in California?” There is none. “What’s it in New York?” There is none. Only certain states have redemption. How are you going to know that? Well, you’re going to have to go to school, or you’re going to have to learn how to look it up online.
Ted (cont’d): In Houston, Texas, or in any of the 254 counties in Texas, all the counties can have an auction on the first Tuesday. However, all 254 counties don’t have an auction because they don’t have a property. I can tell you that in Houston, first Tuesday of the month, they’ll have 200 properties. When you raise your hand and you pay, then for that person, their property is in jeopardy now. If they don’t come in and redeem in 180 days, you own the property. It’s as simple as that.
Ted (cont’d): I didn’t make the rules. That’s the way it is. South Carolina, listen to this. You’re not even going to believe this, Randy. You will not believe what I’m going to tell you. In South Carolina, you raise your hand. I want to buy that one, and you pay them. You give them the money. The guy’s got one year to redeem.
Ted (cont’d): Any time of that year they can come in and pay you whatever you paid, plus the interest rate, and they get their property deed back. If they don’t pay you at the end of the year, you’re just sitting at home, and South Carolina will send you the deed. You don’t have to do anything. They just send you the deed.
Randy: I was just going to ask you that. What do you do if you have a tax lien? I don’t have to do anything; it will just be taken care of? I don’t have to go pursue the guy?
Ted: Nope, you just take the property. It’s yours.
Randy: Let me ask you. Obviously, you might want to try to buy a tax lien for somebody you think might not redeem. Are there any strategies for having a sense of this?
Ted: Let me give you a couple of super simple strategies. I bought a certificate today, but before I buy a certificate, I look it up. I look up the number of the certificate on the list, and then I go on the computer and see that the certificate is in Jacksonville, Florida. That’s where I’m trying to buy, Jacksonville, Florida, but the guy lives in Montana.
Ted (cont’d): He doesn’t pay the tax. Where’s the tax bill going? The tax bill is going to the property. What if no one forwards it to Montana? He doesn’t even know his property’s going to auction. The auction letter is going to go to Jacksonville, and they’re going to send three notices to that property. Big notice of default. I’ll show you one I got here on the desk. There’s a notice of default. Just big notices of default like that.
Ted (cont’d): This is going to be sent to him, but they’re going to send it to Jacksonville. He’s over in Montana. There’s a strategy. What’s another strategy? People get divorced. Who’s paying the taxes? He moves in with his mother. She goes back home. Who’s paying the taxes? Who’s making the payment? There are all kinds of strategies like that.
Ted (cont’d): I can spend two hours on that subject, but the point is I have clients. Matter of fact, if you go to tedthomas.com/freegift, you’ll see a video of a couple. They buy a property for $11,000, and it’s worth 180,000.
Randy: Wow.
Ted: And the people disappeared. They disappeared. No one knows what happened. Left at midnight. Who knows where they went?
Randy: Well, you know what else you’re going to find? If you go to tedthomas.com/freegift, you’re going to find a lot more videos like this one with some great insights. If you don’t know anything about this, you’re going to begin to learn. If you know little, you’re going to learn a little more, but I think you’re going to learn that you might want to talk to this guy or take some of his classes. Again, Ted Thomas, he’s the authority, 30 years you’ve been doing this, Ted?
Ted: Probably 33 now.
Randy: Yeah, something tells me you picked up a few tricks in that amount of time.
Ted: I used to have black hair when I started and I was skinny. I don’t know what happened.
Randy: Well, if you want to learn from the best, you have it right here. tedthomas.com/freegift Check it out right now.
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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