Jurisdiction Lien & Deed Types
The following definitions are excerpts from the free online
Lien Baron's Tax Lien Investing Secrets. You can download the
entire eBook here.
The exact definition may vary from county to county.
Therefore, Tax Sale Resources recommends contacting the
county for their exact procedures.
Tax deeds may be purchased at county auctions in the same
fashion as tax liens. The primary difference is that instead of purchasing the
right to collect interest with a chance of property ownership if the lien is not
repaid, you are purchasing property ownership outright. Tax deeds are usually
offered on properties with several years of back taxes. The current property
owner is given no additional opportunity to retain their title; once you
purchase the tax deed that property becomes yours.
While tax deeds sell for significantly more
than most tax liens, they still offer huge earning potential.
Because you are now purchasing the property itself vs. just a
chance of owning the property, you must be even more diligent in
your research. Never show up to a deed auction with less than a
week of research, and always view properties you intend to bid
on. For obvious reasons, tax deed investing is not something
that should be done sight unseen like some tax lien auctions
If you are a home owner, then you may have a one-sided
understanding of this term. The tax portion of the term typically refers to
unpaid property taxes. The dictionary definition of lien is:
“The legal claim of one person upon the property of
another person to secure the payment of a debt or the satisfaction of an
By putting these two concepts together, we can now see that a
tax lien uses an individual’s property as collateral to ensure the settlement of
a tax-related debt owed to another person or entity. While initially that debt
is owed to the government that imposes the taxes, after a set amount of time
these government agencies will auction unpaid debts to recoup their own expenses
more quickly, opening an opportunity for savvy investors.
Not from Lien Baron's Tax Lien Investing Secrets
Tax Deed & Tax Lien systems are exactly as they sound. Investors first attend a tax lien
auction and bid per the county procedures to purchase a tax lien.
Following the redemption period of the tax lien (ranges from 6 months to 3
years) the lien holder must then inform the county they would like to redeem
Rather than being assigned a quitclaim deed,
the county then holds a tax deed auction, or assigns a tax deed
directly to the lien holder.
If there is a deed auction, the proceeds
gained from the tax deed sale then go towards paying the amount
due to the investor. In many cases, the tax lien holder
ends up purchasing the tax deed. In such case, the lien
investor, who was the lien holder, is now the owner of the
If the county assigns a tax deed directly to
lien holder, the investor now owns the deed to a property for
the cost of what they paid to redeem the back taxes.
Hybrid systems are a combination of the tax lien and tax deed
sales systems. In a hybrid system, you purchase the title at auction in the same
way that you would purchase a tax deed, but as with a tax lien the original
property owner has a redemption period that allows them to meet certain
conditions to retain their property. This may sound like a high risk investment,
but in truth it is a very lucrative one. You can usually purchase the property
title for a mere fraction of the property value.
At hybrid auctions, buyers typically bid up, meaning that the
bidding starts at the amount of back taxes owed and goes up as bidders decide
what premium they are willing to pay. But, unlike some tax lien premium
auctions, your premium does not go unrewarded. Bear in mind that what you pay
for a premium could be what you are paying for the property and that even if the
property owner redeems their title, it will be at significant cost to them and
serious profit to you. To redeem their property, the original owner will not
only have to pay back the property taxes and premium (as with a lien) but will
also have to pay a penalty rate that is often well above the maximum statutory
interest rate allowed on tax liens. So if your initial investment was $32,000,
you will earn a profit of at least $8,000.
Even better, during the redemption period the property is
still considered yours, so should the property owner fail to redeem their title,
they will be unable to damage the property in any way. Not only that, but you
are free to do with it as you please until they do (or do not) redeem it. That
means you could rent the property and all proceeds would be additional profit.
When done correctly (i.e.: when you research the properties and buy low), hybrid
systems are an excellent investment opportunity.