What Is a Tax Deed Sale?

By Fawn Farley , last updated October 12, 2011

During a tax deed sale, tax deeds are sold to investors in a process similar to foreclosure. Tax deed sales are government-run auctions for properties to collect on taxes owed. Investing in tax deed sales can be a low risk and high reward investment or a very affordable way to purchase a home. Be sure you understand the intricacies of tax deed sales before bidding at an auction. There are some caveats you must understand.

If a homeowner fails to pay taxes on their real estate, sometimes the county will put the house up for auction as a tax deed sale. The county relies on the money from taxes collected, and they do this to recoup fees that have gone unpaid. Generally, a homeowner is given many chances to pay back-taxes and the tax deed sale is a last resort. However, even upon an investor's purchase of the tax deeds, the homeowner has a right to make proper payment and retain ownership of the property within a given time. This is generally around a year, but can be more or less, before the sellable title is issued to the tax deed purchaser.

Tax deed sales are publically announced up to a month in advance. Watch for ads in the local newspaper, contact a specific county office, or peruse the Internet. Tax deed sales are often listed with foreclosures, and websites like www.foreclosure.com offer listings for every state. There is a certain investment secrecy with tax deed sales, as fewer people are aware of them than foreclosures. A great benefit to tax deed sale, however, is that you stand to purchase a property for a whopping 50 to 90 percent below market value.

Make sure that you understand state and local laws with each consideration of purchase. Tax laws differ greatly from state to state, and not all states have a redemption period when the homeowner is able to retain ownership through payment. Also be aware that all repair and maintenance are liable to the purchaser of the tax deeds. Therefore, it is critical that you research any property before purchasing, and, when possible, visit and inspect the site.

Risks associated with purchasing tax deeds can be handled with ease if understood prior to auction time. You must understand that your money may be tied up for years. Although it differs from state to state and auction to auction, you can expect that capital sum to be in the ballpark of $5,000 to $10,000. You need this capital on hand because loans can be hard to acquire for tax deed sales since the title may not be issued for up to a year. Make sure to research tax deed law in the county and state you wish to make a purchase.

Acquiring property through tax deed sales can be one of the best investments you can make. You can obtain full property rights on a home for the mere cost of its back-taxes plus any interest charges or court fees. Just make sure you have the necessary capital, time, and patience before bidding!

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