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Tax Lien Certificates

When property owners do not pay their property taxes, counties in many states issue what is called a tax lien certificate.  These tax lien certificates are then sold at a public or internet auction, typically once per year in most counties. 

During these sales, investors can bid on the certificates. Bidding starts at the state-mandated interest rate and is typically bid down in most states. Depending on the state, interest rates can range from as low as 8 percent to as high as 36 percent per year. 

The winning bidder receives a legal claim to the tax debt, usually called a tax lien certificate or certificate of purchase, that records the amount of money due to the investor should the property owner pay off the debt by redeeming the certificate.

If the property owner pays back to the county the property taxes and penalties due, plus the winning interest rate at the sale (i.e., the certificate is redeemed), the certificate owner gets their money back plus the winning interest rate. 

If the certificate is not redeemed, then the investor can foreclose on the property, often getting it for only the taxes, penalties and interest due.

Here are some states that offer tax lien certificate investing:

Alabama, Arizona, Colorado, Florida, Illinois, Indiana, Iowa, Maryland, Mississippi, Missouri, New Jersey, New York, South Carolina, and Wyoming.

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