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How Does a Delinquent Property Tax Sale Work?

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Feb. 9 2022, Published 2:21 p.m. ET

By April 1 of each year, homeowners have to pay their property taxes. If they don’t, they could eventually lose their homes due to delinquent property taxes. How does a delinquent property tax sale work?

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When a homeowner fails to pay their yearly property tax within a specific timeframe, a tax lien is put against their property. The homeowner can “redeem” themselves and buy back the lien by paying off their overdue taxes within a set timeframe. That redemption period is usually 1–3 years. If they still don't pay the outstanding taxes, a tax sale might be held to help collect the delinquent taxes.

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What are the differences between tax deed sales and tax lien sales?

Tax sales are done two different ways—through a tax deed sale or a tax lien sale. Most people are familiar with the tax deed sale, where a property with unpaid taxes is sold at auction. Tax deed sales often occur when the government seizes a home for unpaid taxes and sells the property to the highest bidder at auction.

Although the auction sale price usually starts at a cost that only covers the delinquent taxes, plus interest and fees, the price can increase if there are several bidders. Usually, buyers don’t get a chance to see the property before buying the deed.

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Tax liens are also sold at an auction. In a tax lien sale, the buyer doesn’t get ownership of physical property. Instead, they purchase the tax debt and the right to collect on that debt plus interest. If the property owner fails to pay off the tax debt within a certain timeframe, the lien owner can then foreclose on the property.

Not all states allow tax lien sales. Currently, tax lien sales are only held in 29 states, as well as the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. The process for a tax lien sale can also differ from state to state. The redemption periods offered for homeowners to pay their past-due taxes and the maximum interest they can charge also vary by state.

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For example, according to the National Tax Lien Association, the maximum interest rate in Iowa is 2 percent, while in Florida, the maximum interest rate is 18 percent.

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Why would you buy a delinquent property tax lien?

Buying a tax lien is a way to make money primarily through the interest the homeowner pays on the back taxes. It can be seen as a more lucrative alternative to a volatile stock market. However, tax lien sales can be risky for buyers.

If the homeowner doesn’t pay the overdue property taxes, the lienholder might be forced to foreclose on the property to save their investment. Foreclosure can be a complicated process, especially if there are other liens on the property.

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Can a homeowner get their property back after a tax sale?

There are opportunities for a homeowner to save their home after a tax deed or tax lien sale. In a tax lien sale, the homeowner still owns the property and can continue to do so by paying off the lien, which equates to the overdue taxes plus interest.

In the event of a tax deed sale, homeowners might be given a redemption period to pay off their overdue taxes after a tax deed sale has taken place. However, the homeowner might be required to pay the deed buyer the amount they paid at auction, which might exceed the cost of the overdue taxes and interest.

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