What Happens When a Property is Sold For Back Taxes?

When a property owners fails to pay their property taxes, they are usually given an ample period of time to rectify the situation – at least a year in most cases, and often many years. If they fail to make arrangements to pay the taxes, the government will sell the deed to their property at tax sale (or a lien on the property, in tax lien states) to the highest bidder at tax sale.

The winning bidder must pay the full amount of their bid in cash at the tax sale, and then must wait out the redemption period before they can foreclose and apply for the deed. During the time, the owner may still pay the back taxes and penalties as well as the interest on the winning bidder’s investment and bail the property out of taxes. Once the redemption period expires, the owner loses the property permanently.

For investors, this is not a great way to buy property. You aren’t allowed to inspect properties before bidding on them, so you don’t quite know what you’re getting into. And on nicer properties, owners frequently pay off the deed or lien. Not to mention that the competition at tax sale is fierce, and you’re often competing against large companies that invest in tax sale properties full-time. There are few deals to be had any more at tax sale, and to profit from the property you’ve really got to buy it outside the auction.

The best way to get back tax property is to wait until close to the end of the redemption period and then see who still hasn’t paid off their taxes. This is the prime time to contact these people, as they need to sell to keep from losing everything to the government. These owners are often ready to sign over the deed just to be done with the foreclosure and move on.

Also, by this time you can be fairly certain that the properties left are free and clear. Mortgage companies step in and pay off delinquent taxes to redeem properties (usually before the sale), and properties that make it that far are almost always mortgage free.

All this adds up to property that is almost guaranteed to have built-in profit at the time you buy – especially if you can grab the deeds for a few hundred dollars from owners that were going to let the property go anyway.

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