Where to Buy Tax Yield Certificates?

Tax yield certificates, including tax lien and tax deed certificates, are investment instruments emerging from unpaid property taxes. Local governments issue them to recover delinquent tax revenue, allowing investors to provide immediate funds and earn a return.

Understanding Tax Lien Certificates

A tax lien certificate is created when property owners fail to pay their local property taxes, leading the government to place a legal claim, or lien, against the property. This certificate represents the amount of unpaid taxes, along with any accrued interest and penalties. Investors acquire these certificates, essentially paying the delinquent tax bill on behalf of the property owner. The certificate does not convey property ownership but rather a right to collect the owed taxes plus interest from the property owner.

The yield for investors comes from the interest earned on the amount paid for the certificate. Interest rates vary significantly by jurisdiction, ranging from a modest few percent up to 36% or more annually, with some states offering rates between 6% and 24%. This interest can be determined by state law or through a bidding process at auction, where investors may bid down the interest rate they are willing to accept or bid up a premium for the lien. The investor receives their principal investment back along with the accrued interest once the property owner repays the delinquent taxes.

The redemption period is the timeframe during which the property owner can repay the tax debt, interest, and penalties to reclaim their property. This period varies by jurisdiction, ranging from six months to three years. If the property owner redeems the lien within this period, the investor receives their original investment plus the earned interest. Most tax liens, 95% to 97%, are redeemed by the property owner.

Should the property owner fail to redeem the tax lien by the end of the redemption period, the tax lien certificate holder may gain the right to initiate foreclosure proceedings to potentially acquire the property. However, this process is lengthy and complex, varying based on local regulations. It is not the primary objective for most tax lien investors, as the main profit comes from the interest earned during the redemption period. In some cases, if no one bids on the property at a subsequent tax deed auction, the tax lien certificate holder might become the new property owner.

Purchasing Tax Lien Certificates

Tax lien certificates are sold through public auctions conducted by county or municipal tax authorities. These auctions can take place in person or online, depending on the specific jurisdiction. Information regarding upcoming sales, including lists of properties with delinquent taxes, is advertised on county websites or in local newspapers. Thorough research of these lists is an important initial step for potential investors.

Before participating in an auction, prospective bidders must complete registration requirements, including identification and a refundable deposit.

The bidding process itself varies across jurisdictions. Some auctions operate on an “interest rate bid-down” system, where investors bid down the rate they are willing to accept. Other auctions use a “premium bid” or “overbid” system, where investors bid an amount above the face value of the lien. Some areas also use lottery systems or round-robin approaches.

After a successful bid, the winning investor is required to pay the amount of the unpaid taxes, along with any accrued interest and fees, often within a strict timeframe such as 24 to 48 hours. Acceptable payment methods can include wire transfers, certified checks, or electronic payments, as specified by the county. Upon successful payment, the investor receives a tax lien certificate, which serves as proof of their investment and their right to collect the tax debt. This certificate details the outstanding taxes, penalties, and interest.

Due diligence is part of the purchasing process. This involves researching the property’s condition, market value, and any other existing liens or encumbrances that may affect future value or salability. While tax liens have priority over other liens, such as mortgages, understanding the property’s overall financial and physical state is advisable. Investors should also verify the accuracy of the lien amount and ensure the property has potential for redemption or, in rare cases, profitable resale.

Understanding Tax Deed Certificates

Tax deed certificates, or tax deeds, represent a different stage in the delinquent property tax recovery process compared to tax lien certificates. A tax deed sale occurs when a tax lien on a property has not been redeemed by the owner within the statutory redemption period. Unlike a tax lien, which is a claim against the property, a tax deed involves the direct sale of the property itself to recover the delinquent taxes.

Purchasing a tax deed often means acquiring direct ownership of the property, rather than just a right to collect a debt. The government body, usually the county, obtains the tax deed, which is a legal document granting it the authority to sell the property. This process transfers the property’s title to the new owner, often aiming to clear most existing liens and encumbrances, though some government liens may survive.

Acquiring a property through a tax deed sale implies the new owner assumes responsibility for property maintenance and any associated costs. While a tax deed aims to provide clear title, purchasers need to undertake further legal action, such as a “quiet title” action, to fully resolve any lingering claims or clouds on the title. This legal procedure seeks a court order confirming that the tax deed sale procedures were followed correctly and to eliminate any remaining interests from prior owners or lienholders. Without a quiet title action, obtaining title insurance for the property can be difficult, which is necessary for future sale or refinancing.

Purchasing Tax Deed Certificates

Tax deed properties are sold through public auctions, commonly held by county treasurers or other taxing authorities. These auctions can be conducted in person or online. Public notices and county websites provide lists of properties scheduled for tax deed sales, including details about the outstanding taxes.

Thorough due diligence is important when considering a tax deed purchase, as these properties are sold “as-is”. Investors should research the property’s physical condition, potential environmental issues, and any surviving liens that may not be extinguished by the tax deed sale. It is also advisable to investigate for any bankruptcy filings by the prior owner, as this could complicate the transfer of ownership. Physically inspecting the property, or at least viewing it from the street, and reviewing tax maps and aerial photos, are important steps.

Registration is required for prospective bidders, involving identification and possibly a deposit. The auction process begins with a minimum bid set to cover the outstanding taxes, interest, and costs associated with the sale. Bidders then compete, with the highest bidder winning the property.

Upon winning a bid, the purchaser must pay the full amount within a short timeframe, such as 48 to 72 hours. Failure to make timely payment can result in the cancellation of the sale. After payment, the new owner receives the tax deed, which transfers legal ownership of the property. The final steps involve recording the tax deed with the appropriate county office and potentially pursuing a quiet title action to ensure marketable title and clear any remaining claims on the property.