Introduction to the Tax Deed States
With real estate at record-high prices, purchasing a home for several thousand dollars may seem like a home run investment. Tax deeds allow you to purchase homes forfeited by property owners who failed to pay taxes. However, your investments in this area can go south due to state laws, a home’s actual condition, ownership disputes, and more.
Tax Sale Resources has spent the last fifteen years developing expertise on each tax deed state. Our guide will help you avoid costly mistakes and discern lucrative opportunities at a tax deed auction. So, let’s dive in by first differentiating between tax liens and tax deed states.
What is the Difference Between a Tax Lien and a Tax Deed State?
When a property owner doesn’t pay their taxes, your state deals with the situation in one of two ways: a tax lien or tax deed. Although both tax liens and tax deeds have to do with real estate, they are distinctly different financial instruments.
A tax lien gives the right to receive payment from an individual or entity that owes unpaid property taxes.
While a tax lien doesn’t grant ownership of any property, it gives the lien holder priority for payment when a debtor sells an asset.
Counties sell tax liens when homeowners fail to pay their property taxes, and investors can buy them by paying the taxes owed.
The taxpayer then owes the lien holder the value of the lien plus interest.
If the taxpayer or business can’t make sufficient payments within the redemption period – which can last months or years – they will forfeit their property to satisfy the debt.
The tax lien holder is first in line to reap the financial benefits of a property sale, even if the taxpayer has other creditors pursuing them.
Therefore, a tax lien is a right to collect payment when the property owner liquidates the asset.
On the other hand, acquiring a tax deed is like purchasing a home.
A tax deed is the right to the property itself instead of profits derived from the property.
Homeowners who fail to pay their property taxes can lose their homes to municipal governments, giving investors the opportunity to buy the tax deed to the property.
Remember, a tax lien state handles scenarios with unpaid taxes by holding a lien against the taxpayer’s property and assets.Conversely, in tax deed states, the local government takes ownership of the property when the owner doesn’t pay their taxes.
The government auctions off the tax deeds to recoup costs, allowing investors to buy property at a steep discount.
States might combine the tax lien and deed items into a process that ends with a tax deed.
For example, Florida first holds a tax lien sale. After holding the lien for a specified period, they can submit a tax deed application during the foreclosure process.
The state then holds a tax deed auction where lien holders can become deed holders of the same properties.
This scenario represents a state using both tax liens and deeds to handle property.
Redemption Periods in Tax Deed States
Some tax deed states have redemption periods for taxpayers. In these cases, the government holds onto the tax deed for months or years, giving the taxpayer a chance to pay their debt and recover the rights to their property. If the taxpayer doesn’t pay before the redemption period expires, investors get the tax deed.
The redemption range by tax deed state may vary drastically, some examples are as follows:
- Arkansas – 30 days for owners without disabilities and 2 years for owners with disabilities
- California – Until full price is paid
- Kansas - No redemption following the sale
- Louisiana – 3 years
There are also redeemable tax deed states, which we cover in our basics to redeemable deed investing.
Tax Deeds State List
Of the 50 states, we consider there to 27 tax deed states. Now depending on which resource you review, you may see different states that are listed as tax deed states, and this can be attributed to the where you draw the line on what is considered a “tax deed state”.
Some resources may classify certain states as either lien or redeemable deed states, while others may just call them deed states.
In the confusing and ever-changing world of tax deeds both classifications may be correct.
According to our internal classification, the list of tax deed states is as follows: Alaska, Arkansas, California, Idaho, Kansas,Maine, Massachusetts, Michigan, Minnesota, Nevada, New Mexico, North Carolina, NorthDakota, Oklahoma, Oregon, Pennsylvania, Utah, Virginia, Washington, Wisconsin, Florida,Illinois, Indiana, Louisiana, New York, Ohio, and West Virginia.
Tax deed states all function differently so there is no one size fits all.
These differences may determine which tax deed state you want to pursue all together so make sure you thoroughly vet a state before investing.
For example, the tax deed state sale timing is all over the map, which can make it difficult to track upcoming sales if you are an investor across a multi-state area (If you would like to search all the states for state specific details you can check out our state directory).
- Florida – Monthly tax deed sales
- Utah – Yearly tax deed sales
- New Mexico – Timing of tax deed sales varies
- Washington – Tax deed sales are conducted two months per year (August and December)
To help organize the planning cycle, investors who sign up for Research can see a detailed sale calendar of all upcoming tax deed auctions nationwide.
Tax Deed States and Their Need-to-Know Details Before Getting Started
Tax deed states allow investors to purchase properties that become available through unpaid taxes. These properties often come at a discount, making them fruitful investments. However, investors remember the tips below before getting into the market for tax deeds.
First, it’s essential to be clear about your goals. For example, you’ll need to decide whether you want to own land or collect profits from selling it.
In addition, residential and commercial real estate each come with their own nuances and conditions. Therefore, why you want to acquire real estate and your preferred type are crucial questions to ask yourself before starting.
Each tax deed state functions by its own rules. As a result, working with an attorney intimate with the state’s deed process is critical to savvy investing.
For example, in Pennsylvania, if you blindly buy tax deeds, you could end up purchasing one in an upset sale. This type of sale saddles you with the mortgage on the property, potentially turning your asset into a gigantic liability.
On the other hand, a judicial sale removes other liens before offering the property to investors.
The Tax Deed States with the Best Potential - Backed by Nationwide Data
Getting started in new states and counties can take a tremendous amount of time.
To fast track the tax deed state and county selection process we collect tax sale result data across the country to identify areas of high and low competition.
Our analysis typically only spans a few years in the past to make sure we aren’t overly weighting historical indicators.
As a preview of some of the results data we have compiled a few data points and graphics for Arkansas, California, Florida, Michigan, Ohio, and Washington.
The first graphic shows a limited preview of some tax deed state sale results broken down by year. The data includes the sum of the total tax deed parcels up for auction, the sum of the tax deed parcels sold at auction, and the average percent of parcels sold compared to the average parcels up for auction.
The next graphic shows a limited preview of some tax deed state sale results broken down by year. The data includes the sum of the tax deed parcels total sale amount (advertised), and the sum of the tax deed parcels amount sold at auction.
If this type of data, but with more details, would be helpful to you in your analysis, please reach out to customer support to see what options you may have available.
Tax Deed State by State Investing Case Studies
Buying tax deeds can lead to financial success or disaster.
The difference usually lies in performing your due diligence and making informed decisions.
For instance, you might unintentionally buy an empty lot you thought held a family home (This unfortunately happens!).
Therefore, learning from the following case studies can sharpen your discernment when investing in tax deeds.
Tax Deed Case Study on Asset Value
Real estate is not always as it seems when it comes to tax deeds.
For example, the county might not relay updated information about the home you’re considering buying.
If you don’t do your homework, you could end up with a piece of land holding a demolished house instead of a livable home.
Unfortunately, if you are on the wrong side of this deal, you don’t have recourse from the county. In other words, you can’t renege on the sale or get a refund – sales are as is.
As a result, thorough research is key to sound tax deed investments. It can prevent you from buying a plot of land with nothing more than a mailbox or accidentally inheriting an unpaid mortgage.
Asset value determines how lucrative your tax deed investment will be, so it’s wise to get an accurate picture of what you’re buying.
Tax Deed Case Study on Title Issues
For instance, say you’re trying to buy a title deed where the owner has passed away and left a surviving spouse. The spouse can file a quiet title action to contest ownership of the home, costing you tens of thousands in legal fees.
In other words, the time and money required to resolve title issues can ruin your investment.
Tax Deed Case Study on Mobile Homes
Tax deeds for mobile homes can be tricky because the land doesn’t always come with the structure.
Inquiring whether the tax deed grants ownership of the land, the home, or both is crucial.
Specifically, owning the land without owning the building can be problematic if you want to put another home or clear out sufficient space.
So before removing the trailers of the new land you just purchased, make sure you check with your lawyer to ensure you are within your land owner rights.
Failing to do so can and has resulted in hefty litigation fees and headaches for many new investors.
Tax Deed Case Study on Louisiana “Ownership”
Tax deed ownership can look different based on the state you do business in and the stage of the redemption process.
For example, if you buy a tax deed in Louisiana late in the redemption period, you might receive partial ownership – as low as 1% - of the property.
Investors can get into sticky situations by assuming certain facts and conditions about the tax deeds they purchase.
Instead, it’s vital to perform due diligence before committing to an investment, and ensure you understand what partial ownership means in Louisiana. To learn more about the Louisiana tax sale process, check out our interview and white paper with Stephen Morel.
Tax Deed States and Some Secrets to Winning
Investing wisely in a tax deed state requires a qualified attorney.
By speaking to one before you sink your first dollar into a tax deed, you set yourself up to make better investing choices.
In addition, familiarizing yourself with the statutes governing each tax deed state will help you make informed decisions.
If you’re struggling to find a list of attorneys and general statute information, you can look them up for free on our state directory.
Additionally, paying for a title search and an inspection can help you make a wise investment, and avoid the costly mistakes previously profiled.
These drive by inspections are critical as Googling a property can give you an incorrect impression of a property because a photo of a standing home from two years ago doesn’t necessarily represent its condition today.
Remember, once you purchase a tax deed, you’re stuck with it – for better or worse.
Another secret to winning is to develop expertise in a specific investment type.
For example, if you learn how to maximize profits from commercial real estate or vacant land, you can outbid other investors and squeeze out more profit allowing you to win more at each auction you attend.
Unfortunately, going into an auction to buy a tax deed usually isn’t a specific enough goal to help you compete and win against other seasoned investors or generate substantial and sustainable profits.
Utilize Technology to Find the Best Tax Deed Properties
To help make the tax deed state and property search more scalable, investors nationwide are turning to the Research platform to expedite their due diligence process.
Reason number 1 – it only take one check box to filter and see all the upcoming tax deed sales nationwide.
Reason number 2 – after you find the auction you are interested in, you can quickly and easily filter the results by any parcel data point making your research process way quicker!
Reason number 3 – the most helpful way to mitigate the big-time loser investments is to do comprehensive research. Through the platform investors can buy title searches, property inspections, valuation reports, and property scope reports. These reports give investors the security needed to bid with confidence!
Those are just a few of the ways the platform can assist in your tax deed research process. Check it out today to start growing your tax deed investing portfolio with confidence.
Tax deed states give investors the opportunity to purchase real estate at excellent prices.
However, to think that homes in excellent condition are ripe for the picking is to oversimplify this kind of investment.
Homes acquired through tax deeds can be in rough condition, partially owned by others, or nothing more than a pile of rubble.
Therefore, making deliberate, knowledgeable choices is essential when investing in tax deeds.
To that end, an attorney familiar with state laws can save you hundreds of thousands of dollars in mistakes.
In addition, thoroughly investigating a property for purchasing can help you from buying a field with nothing more than a mailbox when you thought a family home was up for grabs.
For more information on investment strategy, state auction information, and market research, leverage the power of the Tax Sale Resources.