What is a Tax Defaulted Property?

Posted on Apr 20 2016 - 7:43pm by Lance Edwards

12794640_10205827596955912_3778165297435378464_n (1)By Ted Thomas— The question is, what’s the difference between a tax lien certificate and a tax defaulted property (tax deed)?

Before you begin investing, it is vital that you understand how a tax deed works. You can purchase tax-defaulted real estate for pennies on the dollar, five cents, 10 cents, but it’s only profitable if you know what you are getting when you bid on tax defaulted property (tax deed).

What is Tax Defaulted Property (Tax Deeds)?

In a very basic sense, every piece of land in the United States is owned by the federal government. The government allows you the right to own the property as long as you pay taxes on it.

Many years ago, the U.S. Congress enacted laws that allowed individual states to handle governmental duties and obligations at the local level. The states further designated counties to handle the taxation part of those duties and obligations.

When you pay taxes to the treasurer or assessor’s office, those funds are used to pay for public schools, police and fire departments, and any number of other civic services. The local government that manages and runs these services is primarily funded by property taxes.

Ever year thousands of people neglect to pay property taxes for various reasons. So what happens then?

The remedy for local government is to hold a tax-defaulted property auction. The majority of these auctions use a public oral bid system. To quality as a bidder is simple; you just need to register before bidding. The starting bid is always the amount due the local government for back taxes plus penalties and interest. If you win, you must immediately pay for your purchase.

It doesn’t matter where you live; county governments in all 50 states are authorized to hold auctions to recoup back taxes.

Some states offer tax lien certificates, but other states offer tax defaulted property (tax deeds) which are used to collect the past due property taxes owed.

The difference? A tax lien certificate entitles you to collect the amount of tax you paid plus penalties; a tax deed allows you to become the owner of the property.

That’s right: the deed entitles you to foreclose on the property owner if the local county hasn’t already done so and actually keep the real estate or dispose of it as you wish.