What is a Tax Lien Sale?

Tax lien sales are becoming more popular as unpaid real estate taxes continue to pile up and the general public becomes more familiar with tax lien investments.

In the United States, 29 state (plus DC, Puerto Rico & USVI) tax collectors use tax lien sales to force owners to pay their unpaid property taxes.  But, here's the catch...you're not bidding on the property itself.  You are actually bidding on the unpaid property taxes.  If you are the winning bidder, you become the proud owner of an official property tax lien.

Depending on the individual state law, it can take anywhere from a few weeks to a few years for the tax sale to occur once the current owner goes delinquent.

There are 2 ways to generate a return with tax lien investing:

1. Redemption period.  Once the tax sale occurs, the owner normally has a set period of time in order to pay their back taxes.  If the back taxes are paid, the lien holder receives the amount of their investment, plus the penalty, plus interest.
    
2. If the back taxes are not paid within the redemption period, then the lien holder can file a lawsuit seeking title to the property.

In my next post, I'll discuss the pitfalls and problems that can occur with investing in tax liens.

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