Buying homes at county tax sales is a practice that was once somewhat uncommon, but today is much more mainstream. County tax sales auction off tax lien certificates attached to homes whose. Tax liens occur when a home/property owner fails to pay property taxes within a specified time frame. Home/property owners who are delinquent on property taxes eventually have a tax lien placed on the home.
Once the lien is issued, the government (county or municipality in most cases) becomes interested in trying to recover the taxes (including) they are due as quickly as possible. To do this, the county sells a tax lien certificate at a county tax sale (also called tax lien auctions). Interested buyers can bid on this certificate.
The successful bidder is entitled to ownership of the tax lien certificate. Two possible outcomes may occur, both of which are usually favorable to the buyer. First, the debt can be paid off by the property owner within a government-mandated time limit. The holder of the tax lien certificate gets the amount of the lien, plus accrued interest.
If the successful bidder paid the cost of the lien, he makes a profit in the amount of the accrued interest. If he manages to secure the tax lien certificate for less than its actual value, he profits from the difference as well as the accrued interest.
In the event that the home/property owner fails to repay the lien in the specified amount of time, his home/property is seized. Ownership is transferred to the certificate holder. The new owner is then free to resell the home and pocket the profit.
Provided that there are no other outstanding debts or liens on the previous owner, the new owner will have purchased the home for the cost of the lien. This is often a mere fraction of the total value of the property.
Buying these certificates at county tax sales has a couple of drawbacks. The first is that the successful bidder isn’t guaranteed to end up with a house. However, the buyer usually walks away with at least a small profit if not a house.
The second drawback is that a bidder can burned if he doesn’t research the property beforehand. It’s possible that the delinquent taxpayer may have other debts that must be paid upon the transfer of ownership of the home/property. The bidder also risks ending up with a “money pit” that can’t be sold for the cost of the tax lien.
Seasoned investors advise careful consideration (including doing your homework) to others interested in trying to buy a home at county tax sales. Those who research carefully may stand to make a small to substantial profit by obtaining a home and then reselling it.