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There are two types of government tax sales
used in the United States: one is tax deed sales and another is tax
lien certificates. These certificates are issued against delinquent
taxpayers who have not complied to pay their property taxes. A tax
lien certificate has a face value of taxes owed along with
administrative fees and interest.
At times, the
government auctions tax lien certificates. All 50 states of US have
different laws pertaining to this subject, and sometimes you may
find that the procedures differ per county. Therefore, depending
where the tax lien certificate is being auctioned, it can either be
sold at that face value or it can be bidded upon. Some states also
allow tax lien certificates to be bid on by interest rate. In this
case, the person who agrees upon the lowest rate of interest on the
tax lien certificate is announced as the winning bidder.
Once the tax lien certificate is sold, the delinquent taxpayer is
required to pay back the amount of the lien plus interest accrued,
typically 16-18%, back to the owner of the tax lien certificate. In
case the delinquent taxpayers fails to repay within the required
period of time as assigned by the court or the governing authority,
the tax lien certificate holder is awarded a deed to the property.
To explain this in simple words, when you purchase tax lien
certificates, you are guaranteed a fixed return on your investment.
Depending on the state from where you purchase the certificate, the
earnings may perhaps be as high as 50%. Even if you get paid less
than 50%, your investment is protected with the actual property.
With tax lien certificates, the holder must make the required
payment on the property tax payment for the property owner. And in
turn, the property owner would pay the holder the agreed amount of
taxes and the penalties so accrued. Thus, all you have to gain is a
high yield percentage of interest or the possibility of a deed to
that property.
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