Tax Liens & Tax Deeds for Real Estate Investors

When property owners stop paying taxes, the county has to collect. They do it through two systems, and knowing which one your state uses changes your entire approach.

In tax lien states, the county sells the tax debt, not the property. You pay the delinquent taxes and receive a certificate. The property owner now owes you that money plus interest, which ranges from 8% to 36% annually depending on the state. If the owner pays, you get your principal back plus the interest. If they do not pay within the redemption period, typically one to three years, you can foreclose and take the property.

In tax deed states, the county sells the actual property at auction. The delinquent owner loses the property entirely. You bid on the property and if you win, you get a tax deed. Some tax deed states have a redemption period where the former owner can buy the property back. Others have no redemption, meaning you own it free and clear the day you win.

Some states are hybrid. They sell tax liens first and convert to tax deeds after the redemption period expires. Knowing your state rules is mandatory. The county tax collector website or a real estate attorney can tell you exactly how your state works.

The opportunity is real. Properties sell at tax sales for the amount of back taxes owed, which can be a fraction of market value. A house worth $120,000 might have $8,000 in delinquent taxes. In a tax deed sale, you could buy that property for the opening bid of $8,000 plus auction competition.

FlipMantis Auction Calendar tracks upcoming tax sales in your target markets. Set alerts for new listings and review property details before the auction date.

The biggest risk in tax sale investing is buying a property you know nothing about. Due diligence before the auction is everything.

Start with the property value. Pull comps just like any other deal. Know the ARV, the estimated condition, and the approximate rehab cost. If the property is worth $100,000 and needs $30,000 in rehab, your maximum bid should account for that. Do not bid more than 50 to 60 percent of ARV minus rehab.

Check for other liens. Tax sales typically wipe out junior liens like second mortgages and HOA liens. But they do not always wipe out federal tax liens, which have a 120-day redemption period. Municipal liens for code violations and demolition orders may survive the sale. Run a title search or at minimum check the county recorder website for recorded liens.

Drive the property. Online research tells you the numbers. Driving tells you the reality. Is the roof caved in? Is it occupied? Occupied tax deed properties create eviction situations that cost time and money. Is the neighborhood one where you would actually want to invest? Some tax sale properties are in areas with no resale demand.

Check for environmental issues. Gas stations, dry cleaners, and industrial sites can have contamination that makes the property worthless regardless of the purchase price. A quick look at the property history and neighboring businesses tells you if this is a concern.

FlipMantis pulls ATTOM property data for tax sale listings, showing you ownership history, assessed value, and property characteristics. Cross-reference this with your comp analysis and drive-by notes to make an informed bidding decision.

Tax auctions attract competition. Hedge funds, institutional buyers, and retail investors all show up. Having a strategy prevents you from overpaying in the heat of the moment.

Set your maximum bid before the auction starts. Base it on your due diligence: ARV minus rehab minus your required profit minus a safety margin for unknowns. Write that number down. When bidding goes above it, stop. There is no deal good enough to break your rules.

Understand the bidding format. Some auctions bid up from the opening amount, which is the delinquent tax total. Others bid down on the interest rate for tax liens, starting at the maximum rate and decreasing until one bidder remains. In bid-down states, competition can push your return to 3 or 4%, which barely beats a savings account.

Online auctions have changed the landscape. Many counties now run tax sales through platforms like Bid4Assets or GovEase. Online auctions attract more competition from out-of-state buyers who have never seen the properties. This drives prices up. In-person auctions at the county courthouse often have less competition, especially for smaller properties in rural counties.

Buy in bulk when possible. Larger investors target the high-value properties. Smaller properties with lower tax balances often sell for the opening bid or close to it because institutional buyers skip them. Five small properties at good prices can outperform one large property at a competitive price.

Keep cash available. Most tax sales require full payment within 24 to 72 hours. Some require a deposit at the time of bid. Come prepared with certified funds or a wire transfer ready to go.

Winning the auction is step one. What you do next determines whether you profit or get stuck.

In tax lien states, you wait. The redemption period gives the former owner time to pay their taxes plus your interest. Most tax liens get redeemed, and that is fine. You get a guaranteed return on your money. If the lien is not redeemed, you file for foreclosure. This costs $1,000 to $3,000 in legal fees and takes 60 to 180 days depending on the state. After foreclosure, you own the property.

In tax deed states, you get the deed shortly after the auction. But the title is not clean. Most title companies will not insure a tax deed without a quiet title action, which is a court process that eliminates claims from prior owners and lien holders. Quiet title actions cost $1,500 to $4,000 and take 60 to 120 days. Budget for this in your deal analysis.

Once you have clear title, choose your exit. Flip it if the property needs work and the ARV supports a profit. Wholesale it to another investor if you do not want to rehab. Rent it if the cash flow works. Seller-finance it to a retail buyer if you want monthly income without management.

Track your redemption dates and legal deadlines carefully. Missing a foreclosure filing deadline on a tax lien can cost you the entire investment. Missing a quiet title deadline delays your exit by months.

FlipMantis pipeline tracks tax sale acquisitions through each phase: auction won, redemption period, quiet title, rehab, and exit. Automated reminders keep you on top of deadlines so nothing expires unnoticed.