Tax Lien Certificate Auctions: Redemption

One method or strategy of investing in tax delinquent sales is attending auctions or sales for tax lien certificates. This strategy can be two fold you could either be attending to acquire properties or to take advantage of the high rate of return on your winning bid.

The tax lien sale is usually the first time a property comes up for sale because of delinquent property taxes. This sale is held at the county level and is the method in which the counties get immediate relief of taxes owed.

The tax lien certificates are sold on the property and the winning bidder becomes the first lien holder on this property. If you purchase a tax lien certificate at a sale you are required to pay the back taxes owed on the property and usually the current taxes due also.

Your return on the investment comes when the delinquent taxpayer redeems his taxes. He now owes you the going interest redemption percent on your total investment. For example, you purchase a tax lien certificate at a sale for $100 and the redemption percentage is 20%. After one year if the owner redeems the property you would get $120. This is a much higher rate of return than any other investment I know of. Banks are giving 1-3% and most mutual funds are not paying 10% but with tax liens you are getting 20%. This $100 investment is a simple example and to really see the advantage you must multiply the numbers by 10 or 100 or 1,000.

What happens if the homeowner doesn’t redeem the property? Depending on the redemption period dictated by the state, the owner has so much time to redeem their property. In some cases it could be as little as 6 months and some cases as long as 3 years. If the owner doesn’t redeem in the time stated by law, you will become the owner of the property and can do what you want with it. Sell it for much more than your investment or in the case of vacant land you could build on it. Either way, tax lien certificates are a great way to invest in real estate and make money.

A couple of important things to remember about tax lien certificates are:

1.       You are not allowed to enter the property until you have deed to it so you must wait the redemption time plus as long as it takes to obtain deed. You could be arrested for trespassing.

2.       Remember you are buying the property as is including any faults or problems. Research what you are buying.

Below is a list of some of the states, their redemption %, and redemption periods

·         Alabama -12% and redemption period is 3 years

·         Arizona – 16% and redemption period 3 years

·         California-18% and 2 year redemption period

·         Colorado-9% and 3 year redemption period

·         Connecticut-18% and 2 year redemption period

·         Florida-18% and 2 year redemption period

·         Illinois-36% for full year and 24% on farmland, 2 year redemption period

·         Iowa-24%. Redemption is 1.75 years

·         Kansas- 5% and redemption period is 3 years

·         Kentucky-12% 3 year redemption period

·         Louisiana-17% 3 year redemption

·         Nebraska-14% and 3 years

·         Nevada-12% redemption period for vacant land is 120 days and 2 years for developed land

·         New Hampshire and New Jersey are  18% and redemption is 2 years

·         Oregon -5% and redemption period is 2 years

·         West Virginia- 12% and redemption period is 18 months

This is only a sampling of states offering tax lien certificates and is not all inclusive. Check state statutes for further information.