Tax Delinquency – Why we have an opportunity
Counties need taxes to provide public services (roads, law enforcement, fire and emergency services, etc.). Counties collect these funds through real property taxes. County budgets are based on how much they expect to collect in property taxes.
When people can’t or don’t pay their property taxes, the county’s budget is affected since they aren’t receiving the amount they expected to receive. So they allow other people to pay those taxes for the delinquent property owner and receive compensation for doing so. The type of compensation is set by each county. In general, there are four ways this happens as determined by each state or county.
Don’t Get Confused
Be careful not to confuse tax sales with “mortgage foreclosures”. They are different things. If you use the wrong terminology when talking to the county, they will not give you the information you are looking for.
Two Types of Tax Sales
1) Tax Lien Certificates (Commonly referred to as “Liens”) - When you pay the taxes due, you receive a tax lien certificate. The owner will then have a period of time in which to pay you back with interest. The interest rate is specified by the state. If after that redemption period, they have not paid you back, you will be able to begin the foreclosure process and get the deed to the property. Ex. – Iowa (24% annual interest with a 2 year redemption period).
2) Tax Deeds (Commonly referred to as “Deeds”) - When you pay the taxes due, you get either the full deed to the property or a partial deed to the property which immediately conveys ownership to you. If you get the full deed, you can then sell the property immediately, hopefully for a good profit. If you get a partial deed, you may have to go through some additional procedures or wait until the property sells. Ex. – California (5 years of delinquent taxes accrue and then it goes to auction).
Four Types of States
1) Tax Lien States – In these states, only tax lien certificate sales occur.
2) Tax Deed States – In these states, only tax deed sales occur
3) Hybrid States – These states do both tax lien certificate sales and tax deed sales depending on the county. Ex. – Florida (the first two years the county conducts a tax lien certificate auction and if, in the third year, taxes are still not paid, they conduct a deed auction to foreclose on the certificate(s) previously issued).
4) Redeemable Deed States – A few states do a tax deed sale with a redemption period. You receive a deed to the property but it can be redeemed within a period of time and given back to the property owner. Ex. – Texas (winner gets deed with a redemption period of 2 years for homestead or agricultural land or 6 months for all other land – 25% penalty attached – not an interest rate).
