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What are Tax Lien Sales?

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  • Written By: Adam Hill
  • Edited By: Lindsay D.
  • Last Modified Date: 06 December 2016
  • Copyright Protected:
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    Conjecture Corporation
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Property taxes are assessed on every parcel of real estate in the United States, and inevitably, some property owners fall into delinquency on their property tax payments. Several methods are used by governments at the county level to generate income that was lost through taxpayer delinquency. One of these methods is through tax lien sales.

Tax lien sales, sometimes called tax certificate sales, are held in the format of a public auction by the county government, which announce the planned sales several weeks or more in advance. At the time of the tax lien sale, the items purchased are not the actual real estate or deeds to any property, but rather the right to collect the property taxes that are owed by the delinquent taxpayer. This differs from a tax deed sale, where the actual deeds to the property are auctioned off.

Although the practices regarding tax lien sales vary widely between states and even between counties in the same state, these sales are usually held on a yearly basis. Generally, the winning bidder on each tax lien pays an amount equal to the delinquent taxes owed on the particular property, and becomes the “lien holder” or the owner of that debt- that is, the delinquent taxes are now owed to them, not to the county government.

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These sales are auctions in the sense that when more than one person desires to purchase a tax lien, the rate of interest is progressively bid down, with the person willing to accept the lowest rate of interest ending up the winner. After the tax lien sale comes what is known as the redemption period, during which the delinquent taxes, plus interest and any other fees, must be paid back to the lien holder by the property owner.

In the case that the property owner does not repay the lien holder, the lien holder may then begin the foreclosure process on the property. These proceedings may result in the lien holder becoming the owner of the property, although it is uncommon for delinquent taxes to remain unpaid long enough for this to occur. Depending on local laws, most or all other liens against the property, including any mortgages, are not the responsibility of the lien holder. This fact, coupled with the high rates of interest that are often available, makes tax lien sales an attractive opportunity for real estate investors who are willing to the necessary research on the properties whose tax liens are up for auction.

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