Tax foreclosures occur when a property or homeowner fails to pay taxes. The taxes may be county property taxes or federal or state income taxes; even cities impose taxes for local schools. In seeking payment of the unpaid taxes, the government can impose back payment plus interest and penalties. If the owner can’t pay, the government can foreclose the property and sell it to generate the unpaid taxes, even if the mortgage payments are current. In the event of a tax property sale, the original owner cannot bid on the property.

Types of Tax Sale Properties

• Tax lien foreclosures give you the right to tax the lien at a state-mandated rate, which can be upwards of 18 percent. The homeowner needs to repay you the money you paid for the tax bill in order to release the lien. If the delinquent owner fails to pay in full, you can foreclose and take title of the property.
• Tax deed sales give you the right to the property, which is put up for public sale, usually at auction, to recoup the back taxes plus any interest and court costs. The property is sold without any mortgage, liens or deeds of trust. Tax delinquent properties are sold ‘as is’ and require immediate payment in cash or a certified cashier’s or treasurer’s check.

In most states, there is a waiting period after the government accepts the bid until the deed is turned over to the new owner. This gives the prior home or property owner time to repay the taxes, interest and penalties and maintain ownership. If payment isn’t made, the title reverts to the new owner.

Advantages of Buying Tax Delinquent Properties

• Anyone can bid on a foreclosed property.
• The investment may be very low. The minimum bid is the amount of tax due along with administration charges and accumulated interest. This means government tax foreclosure properties are available for a fraction of their value, which can result in enormous savings on the price.
• You are working with the government, so it’s pretty safe.
• The returns can be very high if you are purchasing the house as an investment, whether you rent it or fix it up for resale.

Disadvantages of Buying Tax Delinquent Properties

• There is no disclosure on the condition of property
• The owner has the potential to redeem the property by repaying delinquent taxes. In some states, this tax redemption period is one year; others, such as California, have periods for as long as five years.
• You must pay cash.
• Purchase must be completed within 24 hours

How to Locate Tax Foreclosures

You can visit the county clerk or recorder’s office to get a listing of foreclosed homes for sale in the area. A county’s web page may include a listing. Also some local and state newspapers advertise properties taxes being sold for taxes.