Understanding The Difference Between Tax Deed Sales And Tax Lien Sales

While there is something that almost every citizen complains about, taxes must be collected in order for our government to provide the necessary services such as police and fire protection, road maintenance, and more. Taxes also support local school systems that work so hard to educate our children. Many of these taxes are collected in the form of property tax on any real property owned, meaning land, homes, buildings, and etc.

If a property owner goes delinquent on his/her taxes, the government must have a method of collecting. This is where tax deed sales and tax lien sales come in. Here, we will try to explain the differences between the two types of sales.

In order to collect delinquent taxes, most counties must wait until the taxes are behind by a minimum of seven years. Once this condition is met, the real property is seized by the county and sold at public auction. Notices of this seizure and sale must be published in order to give the property owner an opportunity to pay the back taxes and any penalties that have accrued.

If the property on or does not step forward and pay these taxes and fees, the property is generally auctioned off to the highest bidder. In sales of this nature, the minimum bid they can be excepted is the amount of taxes due on the property plus accrued interest plus any fees associated with the sale.

So far everything mentioned about this process holds true for tax deed sales and tax lien sales. Here is where the difference comes in to play. If it is a tax deed sale, the highest bidder becomes the new owner of said property with all rights and appurtenances thereto free of any liens, mortgages, or debts. At this time, the new owner may do anything he/she wishes with the property or dispose of it at a private sale.

In a tax lien sale, bidders purchase a certificate worth the amount equal to the back taxes, accrued interest, and any fees associated with the sale. This becomes a primary lien on the property, meaning it must be repaid ahead of all other debts including mortgages. The holder of the certificate may then start adding interest of his/her own to the value of the certificate that must be bought back by the landowner.

In most places, these sales are a bit of hybrid between the two. Essentially, then there's individual's bid on the property as if they were purchasing it out right. At the end of the sale, the highest bidder is awarded a certificate valued at the amount of tax owed plus fees and interest. The landowner is then given a specified amount of time to repay this individual and clear the tax lien in order to claim their property.

If the landowner fails to do this within the specified amount of time, the holder of the certificate may go back to the county government and obtain a tax deed giving him her possession of the property free of any debts, mortgages, or other liens.

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