Tax Property vs Tax Lien Sale – What’s The Difference?
When a property owner fails to pay their taxes for any given year, the property is now Tax Delinquent. The county then has a couple of options at it’s disposal to get the taxes so they can keep operating. They can sell a Lien on the property (a Tax Lien Sale) where a buyer pays the taxes with the opportunity to get their money back with interest or at some later date if the taxpayer still does not pay, they might get the property. Other times they may sell the Property (a Tax Property Sale) itself after so many years.
ach county will do things a bit differently. This article is more of a general overview and not specific advice for a specific county.
Tax Property Sale
In a Tax Property Sale the bidder bids on and expects to receive ownership of the specific tax parcel. The taxes have not been paid, usually for more than a couple of years and they are selling the property itself. So if a person bids on a parcel at a tax property sale, after the redemption period if there is one and after the confirmation of the sale if required, the tax assessor will issue a deed and the winning bidder becomes the owner of that property.
Redemption Period: Window of time that the taxpayer has to pay the back taxes, fees, penalties, and interest and keep their property.
Confirmation of Sale: Court action to approve the sale and complete any of the paperwork necessary (or order it completed) to complete the sale.
Of course be advised, that although the sale is complete, it is still subject to the title encumbrances that were not removed in the tax sale process. At that point, the new owner has all the rights and responsibilities that go with owning that particular property: upkeep, maintenance, taxes, and all the liens that remain in place.
The county completes the foreclosure and generally gets ownership of the property but does not necessarily remove all the liens placed against the property as quite often they did not give proper notice to all interest parties such as lenders or holders of judgments or other liens. This leaves quite a mess for the new owners to clean up if they intend to place any debt finance against the property or sell it to a third party.
Tax Lien Sale
In a Tax Lien Sale, the bidder bids on the debt on the property. That debt, the taxes owed, is secured by the property. The winning bidder either gets paid back with interest or can foreclose and get the property back if the tax-delinquent property owner does not pay.
The tax-delinquent property owner owes the winning bidder, the new holder of the tax lien, interest on the tax debt until they pay it off. If and when the debt is paid, with interest and any fees, the debt is extinguished. This can be a very lucrative way to earn a decent return as some areas pay 9 to 10% interest on the low side to 20% or more on the higher side.
If on the other hand, the delinquent taxpayer does not pay within the time frame allowed by that area, the holder of the tax lien can then foreclose on the tax lien and become the owner of the property.
The Holder of the Tax Lien Forecloses, generally by hiring a competent attorney who can take the proper steps to acquire the property.
The September 13th MAREI Meeting
Join us in September at MAREI where Ted Anderson will be one of our guests sharing more in-depth the differences between tax liens and tax deeds and how the process works should you be trying to purchase or even the delinquent taxpayer in question. Along with our other two guests, we will be discussing that mess that often gets left by the county assessor’s foreclosure process.
