How to Buy Property for Back Taxes

Photo (cc) by SeeMidTN.com (aka Brent)

These days it seems all you hear about is foreclosures. For good reason: You’d have to go back to the 1930s to find a time when foreclosures were more prevalent.

But foreclosure isn’t the only way to lose a house. Another way is to fail to pay your property taxes. In both cases the process offers huge potential bargains to adventurous home buyers.

Since foreclosure investing and buying at tax deed sales involve a similar process, let’s take a quick look at each.

Foreclosure in a nutshell

When a homeowner stops paying their mortgage, the lender goes through a legal process that culminates in a public auction of the home. The bidding essentially starts at the amount owed to the lender, and the property is sold to the highest bidder. If no one bids, the lender will bid the amount of their loan, take the house back and re-sell it later. Here’s a story we recently did about buying foreclosures.

Tax deed sales

When a homeowner stops paying their property taxes, the county tax collector recoups that lost revenue by issuing a tax lien: essentially offering an investor the opportunity to earn interest by ponying up the money for the delinquent taxpayer. But after a few years of non-payment, the tax collector does the same thing a lender does in a foreclosure: they put the house up for sale in a public auction, using the proceeds to repay the tax lien-holders.

Watch this recent story we shot at an actual tax auction – it’s interesting. Then I’ll give you more details below.

So that’s what a tax deed sale looks like, but is this form of real estate investing for you? Let’s explore it a little further.

Here are the typical deal killers when it comes to investing in either foreclosures or tax deeds:

  • You must have all cash, right now. In most places, these properties have to be paid for in full within 24 hours of buying them, so there’s zero opportunity for obtaining financing.
  • You normally have no opportunity to do more than a drive-by inspection. More often than not, you can’t even go in the house at all until after you’ve purchased it. This is the single biggest reason these types of homes sell for 30% to 50% less than their peers: only an idiot would pay as much for a house they can’t inspect as one they can.
  • You have to make sure there are no legal issues. If the house has hidden liens – other loans, an IRS lien, a contractor’s lien, etc. – it’s possible you’ll become responsible for them after purchasing it. That could instantly transform the biggest bargain you ever saw into the most costly mistake you ever made. Solution? A professional title search. But that normally entails spending $75 – $200 on a property that you might not even bid on, much less win.

If all that scared the heck out of you, good – this isn’t a game for the uninformed and it’s no free lunch. For those with the right mix of cash, knowledge and temperament, however, it is a game worth playing.

The steps to buying a property for delinquent taxes

  1. Step 1 – Find out how tax sales are conducted in your area. Call your county tax collection office (better yet, visit in person if you can) and ask about the procedures in your area. You’ll hopefully find someone both friendly and knowledgeable who can explain how these sales work, when they’re done, and how to get a list of properties. Ask lots of questions and learn as much as you can.
  2. Step 2 – Attend an auction. Get a list of the properties, look at a few, then attend an auction. Not to buy, but to observe. See how much the houses you found interesting actually go for. Talk to some of the people there – at auctions I’ve attended in the past, I found the people there to be mostly genial. Ask more questions, get more answers.
  3. Step 3 – Get ready for the real thing. Before the next auction, bring your new knowledge to bear. Find a title company or lawyer that will agree to issue quick, inexpensive title reports. Get the list of upcoming sales and carefully comb through it, discovering what’s available, then deciding what it’s worth and what you’re willing to pay. Visit the properties you’re interested in and do whatever inspection you can. If you don’t know what you’re doing, try to bring someone along that does. Narrow down your list, then get title reports on the final one or two.
  4. Step 4 – Go for it. Attend the auction, put down your deposit and bid. But don’t go over the price you planned on paying. This won’t be easy – you’ve already invested time and money in your picks and you hate to see someone else get them, but that’s the way this business works. Be patient. There’s always next time.

So there you have it – the Cliff notes on buying property for back taxes. There’s a lot more to learn, and much of it involves details specific to your area. So if you’ve got the cash, the time, and the interest, I’d encourage you to explore this way of finding deals. Definitely not the easiest thing you’ll ever do, but wherever you live, there are people making serious money at it. There’s no reason you can’t.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
10 Products That Upgrade Your Home for Less Than $45
10 Products That Upgrade Your Home for Less Than $45

Make a fresh start with these affordable Amazon buys.

The Annuity Everyone Needs — and Anybody Can Get
The Annuity Everyone Needs — and Anybody Can Get

This simple strategy can put more money in your pocket during retirement.

16 Products That Coffee Drinkers Will Love
16 Products That Coffee Drinkers Will Love

We’ve brewed up a list of amazing Amazon products that are sure to perk you up.

9 Purchases That Will Make You More Productive
9 Purchases That Will Make You More Productive

These Amazon products can give you an extra edge at work and other parts of your life.

These 13 States Tax Social Security Income
These 13 States Tax Social Security Income

Uncle Sam is not the only one looking for a piece of your retirement income. Is your state on this list?

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

How to Buy Gas At Costco Without a Membership
How to Buy Gas At Costco Without a Membership

The warehouse club often has some of the cheapest gas in town. Here’s how you can get it as a nonmember.

10 Things to Stop Buying If You Want a Clutter-Free Home
10 Things to Stop Buying If You Want a Clutter-Free Home

If you like to keep things simple, avoid these purchases.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

Vacuums from this brand can last a half-century, if not longer — and they’re hot on the resale market.

A Simple Way to Silence Robocalls Today
A Simple Way to Silence Robocalls Today

A few steps can keep your phone from ringing when a spammer calls.

This Company Makes the Best Tires in America
This Company Makes the Best Tires in America

Driver satisfaction with tires is at an all-time high, but one brand stands out.

Can I Switch to Spousal Social Security Benefits When My Ex Dies?
Can I Switch to Spousal Social Security Benefits When My Ex Dies?

Knowing when to claim can help you maximize benefits.

36 Things That Will Be Obsolete Soon
36 Things That Will Be Obsolete Soon

The writing is on the wall for dozens of things we have grown up with.

17 Surprising Things You Can Sell for Extra Money
17 Surprising Things You Can Sell for Extra Money

You probably don’t realize these items are worth decent cash.

8 Things You Should Always Buy on Amazon
8 Things You Should Always Buy on Amazon

The giant retailer shines when it comes to these things, from basics to hard-to-find specialty goods.

This Health Issue Can Hint at Dementia Years in Advance
This Health Issue Can Hint at Dementia Years in Advance

One type of pain is especially associated with cognitive decline.

8 Federal Income Tax Breaks for Homeowners
8 Federal Income Tax Breaks for Homeowners

Some of these deductions and credits are available to a wide swath of homeowners.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

5 Ways to Fill Your Pantry With Free Food
5 Ways to Fill Your Pantry With Free Food

Anyone can take advantage of these resources.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

10 Types of Retirement Income That Are Not Taxable
10 Types of Retirement Income That Are Not Taxable

There are lots of things Uncle Sam can’t touch — so long as you play by the rules.

6 Reasons You Should Stop Hiding Cash at Home
6 Reasons You Should Stop Hiding Cash at Home

Stashing money around the house is anything but harmless.

These 5 States Are the Most Expensive Places to Retire
These 5 States Are the Most Expensive Places to Retire

If you expect to have modest retirement income, you may want to avoid spending your golden years here.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.