How to Buy a Tax Lien Certificate

Three Parts:Getting StartedFinding Liens for PurchasePurchasing the Lien

A tax lien is taken out against a property owner when he has failed to pay his property taxes. Sometimes, local governments sell these lien certificates to private investors to get a lesser amount of money without pursuing the property owner. Then when the property owners pay back their property taxes, the investor makes a profit. Like with any kind of investing, there are risks in buying lien certificates. If you're considering this investment, keep the following information in mind.

Part 1
Getting Started

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    Understand tax liens. Quite simply, a tax lien represents an unpaid tax debt on a property. If a property owner does not pay their taxes within a certain time period (it varies by state), tax collectors will put the unpaid taxes up for auction. It is through this auction process that you have the opportunity to purchase a tax lien.[1].
    • In the auction, the highest cash bidder wins. The bidder then pays the cash to the government in exchange for the lien, thereby transferring the risks -- and the rewards -- of the lien from the government to you.
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    Learn how you make money on a tax lien. There are basic ways to get a return on investment from a tax lien. The first is through interest payments, and the second is through potential ownership of the underlying property.
    • When you purchase a lien, the property owner is required to pay back the entire value of the lien, plus interest, which varies depending on the state. Typically interest rates will vary between 5% and 36% percent. This means you will get your initial investment, plus a return back.
    • The payment period usually lasts between six months and three years.
    • Although most property owners pay the lien in full,in the event that the property owner cannot pay back the lien plus interest in time, you have the right to foreclose the property (or take ownership of it). This is a complex and time-consuming process, and will involve the assistance of a lawyer. [2].
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    Decide on an area to operate in. Tax liens are issued by county, so you'll have to focus your efforts on specific counties if you want to invest in tax liens. Counties that are financially hurting may be more willing to offer good deals on tax liens. They'll want money up front instead of waiting around for property owners to pay their taxes. Investigate the financial status of counties to get an idea of where you may get the best deals for your lien certificate.[3]
    • A list of counties in the United States can be found at
    • Government financial statistics are a matter of public record. You should be able to find information on county finances on the internet. Try doing an internet search for the records of a county you're interested in.
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    Investigate the laws in the county or counties you'll be operating in. Real estate laws vary from county to county, so you'll want to familiarize yourself with the laws where you plan on investing. Most of what you'll need to know will be on the county website, so start here. If you have questions that are still unanswered, try calling the county executive office and getting more specific answers.[4]
    • You should specifically find out when the county can legally place a lien on a property. Something could slip through the cracks and you might end up buying a lien that was illegally placed, in which case you could lose your investment. Keep this in mind later on when you investigate properties to make sure you buy legitimate liens.[5]
    • Find out if there are any legal limits on what you're allowed to do to collect payment from the homeowners. Are there specific times of day you're allowed to call? How many phone calls or letters constitutes harassment? Find this out to make sure all of your collection efforts are legal.
    • Also find out the foreclosure process in your area. If the homeowners fail to pay their debt, you can start foreclosure proceedings to obtain the property. Foreclosure laws vary from state to state. You can use to find foreclosure laws in your state.
    • If you're having trouble navigating the county's laws, you might want to speak with a real estate lawyer who has operated in the area before. He or she can fill you in on all you need to know about local laws.
    • If you're having trouble navigating the county's laws, you might want to speak with a real estate lawyer who has operated in the area before. He or she can fill you in on all you need to know about local laws.
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    Find out how the county conducts its lien certificate sales. Usually either the county treasury or tax office oversees these sales, so start by contacting one of these to find out what you need to know. Oftentimes lien sales are done through an auction on a certain day of the year. Sometimes auctions are done online as well. Find out exactly how your county conducts lien sales to put yourself at an advantage over other investors.[6]
    • Be sure to inquire about when the next sale will be held and where it will be to make sure you're in the right spot.
    • Also find out the format of auctioning. Sometimes you will bid a price on the lien. For example, bidding may start at $1,000 and then rise as bids come in. You may also bid down on the interest rate for the lien, however. In that case, the interest rate may start at 20% and then go down. Find out which format your county uses to formulate a strategy for the auction.
    • Remember that the homeowners' liability is not affected by how much you buy the lien for. If you end up paying too much for a lien, they don't owe you more. Keep that in mind when planning your bids.
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    Find out what your responsibilities will be once you buy a lien. Again, different counties have different laws regulating lien owners, so you'll have to investigate your locality. Often when you buy a lien you're required to provide written notification to the property owner that you've made the purchase. Also know the local foreclosure laws, since you can threaten to foreclose on the property if the homeowners don't pay back their debt. Make sure to learn about any responsibilities you'll have to make sure you're in accordance with the law.[7]

Part 2
Finding Liens for Purchase

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    Obtain a list of properties up for sale. When you speak with the county treasury or tax office, ask about getting a list of the properties that will be auctioned at the next lien sale. They may have a complete list on hand, or they may refer you to a local periodical that will print the list. Either way, make sure you get a list before the auction date. That way, you can research the properties for sale and plan out your investment much more effectively.[8]
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    Ask if there are any unsold lien certificates from the last sale. Sometimes if there are certificates left over from the last sale, the county might offer them for sale early or for a discounted rate. If there are unsold liens, ask to see the list. Then ask if they will be up for sale early.[9]
    • Keep in mind, however, that leftover liens may have gone unsold because they were bad investments. If you do come across any unsold liens, investigate the properties carefully. It's possible that you discovered a gem that no one noticed at the last auction; or it's possible that lien is a money pit. Find out everything you can about unsold liens to make sure you'll be making a good investment.
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    Narrow down your list. The list could have hundreds of liens for sale, and it's impossible to do a detailed investigation of all of them. Before doing more research, you'll have to cut the list down.[10]
    • A good way to do this is think about how much money you have to invest. If you only plan on investing a few hundred dollars, then you can easily cross off any liens that require more money than that. Similarly, if you have several thousand dollars to invest and are looking for a big profit, you shouldn't bother yourself with smaller liens.
    • You could also focus on particular types of liens. Tax liens could be placed on residential or commercial properties, so focusing on one or the other could narrow down your list.
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    Investigate the properties ahead of time. Remember, once you buy a lien certificate, you assume the risk if the occupants don't pay back their debt. When you've obtained the list of liens, make sure to research all the properties you may be interested in. You want to make sure you'll be making a good investment, so look out for any signs that a property may not give you a profit.[11][12]
    • Find out if a mortgage is out on the property. In this case, the lender might step in to pay the lien before you get a chance to buy it. Lenders might be willing to pay much more than you to protect the larger investment in the property and prevent foreclosure. Or they also might try to legally stop you from foreclosing on the home if you do manage to buy the lien.[13] It's better to go for homes that have the mortgage paid off because you won't face competition from mortgage companies that have a lot more money at their disposal.
    • Dilapidated properties in economically depressed neighborhoods are a very risky investment. They often promise a high interest rate, but if the occupants are unable to pay their debt, than you won't be able to earn back your investment. Also, sometimes occupants owe more in back taxes than the value of the home. This means that if they abandon the property, you won't even be able to earn back your investment by selling the property. Avoid these properties or invest with caution.
    • Properties that have suffered environmental problems such as chemical contamination are a risk as well. The cost of the cleanup will probably outweigh the potential profit to be earned from back taxes. Take for example old gas stations. These properties need a complete overhaul because old gas tanks have to be dug up and the ground has to be decontaminated. This is a dangerous investment that could easily end up losing you money.
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    Come up with a final list. After narrowing your list down and investigating some properties you're interested in, you should draw up a final list. This way you can be prepared to focus on specific liens on the day of the sale. The size of this list will depend on how much you're looking to invest. If this is your first time and you don't have much to invest, keeping the list in the single digits is probably a good idea. If you're a professional with a lot to invest, the list can get as large as you can afford.

Part 3
Purchasing the Lien

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    Attend the lien auction. When you've done all of your research and have a final list in mind, it's time to bid on the liens you want. Go to the location of the lien sale that you found out in Part 1. Beforehand, you should work out exactly how much you're willing to spend on each property. Without an advance plan, you could get carried away and bid too much on a lien that won't give you a good return on your investment.
    • Remember to take other expenses into account besides the cost of the lien. For example, if the homeowners fail to pay their taxes, you might have to start judicial foreclosure proceedings. This will lead to legal fees, which can get expensive. Keep this in mind when deciding how much to spend.
    • The lien sale, whether online or in person, is a typical auction format. The lien for sale will be announced, an opening price will be set, and then bidding will start. Pay attention during the auction so you know when a lien you're interested in comes up.
    • Usually auctions require payment in cash or bank checks, so keep this in mind. Add up what you're willing to spend on your liens, and bring either enough cash or a few bank checks. Some auctions allow you to finance a purchase. If this is the case, you should get approved as early as possible to avoid potential administrative slowdowns.[14]
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    Notify the property owner if you're required to do so. Remember, you want to make sure you stay in accordance with the law during this whole process. You may be required to provide written notification of your purchase to the property owner. Do this, and any other activities you're legally required to do after you make your purchase.[15]
    • When notifying the property owners, send a certified letter to their address. Let them know that you've bought the lien on their property. The county is supposed to notify a property owner when a lien is up for sale, so they should already be aware of this possibility. Let them know how much they owe in back taxes, and when this amount must be paid by.
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    Pay attention to the expiration date on the lien. When you buy a lien, it usually comes with an expiration date. When this date passes, you no longer have a claim on the back taxes. If the property owners aren't paying their debts, notify them again about their outstanding debt. If you do nothing, you risk losing your investment.[16]
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    Collect your money when the property holders pay their taxes. The property owners still have to pay their money to the county when you've purchased a lien. When they do so, the county will contact you and you can go pick up your profits from the county office.[17]


  • Don't be shy. Speak to as many of the other bidders as you can at the sale to learn more.


  • Your investment is not liquid.
  • Many people buy tax liens and mortgage notes expecting to get a house if the tax is never paid. Rarely does the property go into foreclosure. This doesn’t mean the lien is a bad investment, just know that you're unlikely to get a house from it.

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Categories: Buying Property