Tax lien certificate and tax deed: how do they work?

First of all, I would like to clarify what is a tax lien certificate (TLC) and tax deed (TD). Let’s go!

Well, tax lien is a fee charged by the county in order to recover the tax (lien) that was not paid for a certain period of time by the owner of the property.

After all, the county survives on this tax, that is, without the correct payment of these values, there is no budget to invest in services such as asphalt, fire, school, policing.

For this reason, the so-called tax lien appeared in the United States over 200 years ago. The first catalogued certificate issued was made by Thomas Jefferson, the 3rd president of the United States.

In addition, the Roman Empire has been using TD and CTL techniques since 300 BC. Definitely not a recent type of investment.

Thus, the tax lien certificate is nothing more than the certificate of debt in relation to a certain property. Such certificates can be acquired by anyone in order to settle the debt and improve the county budget.

But, what is the advantage in that?

Then, regardless of the financial situation of the country, the state certifies the payment with certain interest. However, there is much more to it than that!

In this post you will find out everything. Come and see!

What is the advantage of the Tax Lien Certificate for the investor?

It is very common for people to ask themselves what the reward is for picking up the debt for a defaulter.

In fact, there are many advantages to it.

The first one is that this investment will give you a return of 5 to 36% after 6 months to 3 years! Better than many stocks.

But what is the guarantee that the investor receives this amount after a certain period?

First of all, the state legislation guarantees this for you.

To explain the second point of guarantee I will give an example.

Let’s suppose that you bought a Tax Lien Certificate for 1000 dollars and the value of the property is 200,000 dollars and that the state where the property is located guarantees a return of 36%.

So when the owner of the property pays the debt with the county, you will receive the $1,000 plus the 36% interest on this payment, i.e. $360.

However, it may be that the owner does not pay the debt after a certain period. What will happen in the sequence?

Then comes the Tax Deed. This is nothing more than an auction opened by the county itself to sell the property in question.

This way, with the money from the sale, the investor who bought the tax lean certificate receives the amount invested plus interest.

If, by chance, this property is not sold at the auction, the property becomes the property of who acquired the tax lien certificate. 

Therefore, generally from April on (depending on the states), the properties become defaulted and there is the opening of the tax lien certificates by the counties for who wants to buy them from anywhere in the world.

Anyway, now that you have understood better how it works let’s proceed to Tax Deed.

How to buy Tax Deed and Tax Lien Certificate?

The shapes are quite variable, because each state has its rules.

However, I’ll quote the main methods in detail:

Auctions (tax sales): can be both live and online. The former can last a whole day or just a few hours, while the latter are done 100% over the internet and you need to deposit the bid values in advance.

This way, participants in the auction can bid in different ways. 

For example, you can make a premium bid that is the sum of unpaid taxes, accrued interest, fines and other legal costs. 

In addition, you can also place a bid at a lower interest rate and lower it as other smaller bids appear. In this sense, the participant can make the bid based on the percentage of ownership and go down as the competition.

Finally, there is the form of rotational bidding (which occurs only in face-to-face auctions) that works based on the location of the seats.

Everyone can participate in the tax sale, except county employees or their relatives; property owners; people who have debts with that county.

Over the counter: through this method you don’t have to participate in any auction, just buy the tax lien certificate or the tax deed. To give you an idea, the USA has 3144 counties and each has an average of 4000 TD’s.

Finally, after you buy a TLC and the owner pays the debt plus the pre-established interest, the investor has the guarantee of the law that within 4 days he will receive the payment from the county.

How to use the tax lien certificates to obtain a property

For this to happen, the owner must not pay the debts and you must file the application for the issuance of a new deed of ownership. 

All this is done by contacting the county and following all the state rules. 

If you are interested in obtaining the properties, your focus should be on buying tax lien certificates of abandoned real estate, in a very deplorable state.

Thus, the redemption fee from the former owner drops considerably.

In this context, family homes, commercial properties with a well-established purpose and agricultural land have a very high redemption rate, at around 99%.

So if you don’t feel comfortable in having to reform a property from scratch, you should focus on buying the FTA of well-preserved, high quality homes, because it is almost certain that the homeowner will honor the debt repayment.

However, you need to be very careful with investments in problematic condition homes in bad neighborhoods, since the costs with the reform may bring losses and not profits. 

Therefore, this is a risky type of business. You can’t get in if you don’t know what you’re doing.

Tax Deeds – everything you need to know

Unlike a tax lien certificate, buying the tax deed means you’re acquiring the property itself and not investing in future interest. 

As we’ve seen before, the non-payment of tax leans by the owners causes the property to go up for auction.

Thus, the county opens the tax deed blessing. 

The values practiced in auctions are variable, but basically there are two ways:

1st: the county will put the property on auction with the initial bid of the total taxes the owner owes (plus taxes, fines, interest, fees and costs) – this is the form most used by counties;

2nd: the sale of the auction will start with a percentage value in relation to the price of the property negotiated.

It is worth remembering that if the property acquired has any mortgage or other lien (except for the higher liens of the IRS), these debts are cancelled at the time of purchase.

Also, make sure that when you make an offer, you have the necessary amount to settle the post-trial taxes, i.e., the tax liens for previous years. Otherwise, there will be a problem. 

Anyway, before you purchase a tax deed it is very important that you know the rules of that county or state and also have enough information about the property negotiated in order to make an offer that gives you a profit.

99% of the risks related to the tax deed are eliminated when you have knowledge of the process.

So follow the 5 steps to invest in Tax Deed:

Step 1 to invest in Tax Deed

The first step is to get the list of properties that were negotiated by the county.

You can find those that have already been sold and at what price.

But it is also possible that you find lists of properties that went to auction but were not sold. Often, there are more properties than interested investors. This can mean excellent opportunities.

Step 2 – Visiting the area

Master the places of interest. Knowing which neighborhoods are best to live in is vital when it comes to tax deeds.

So, have a map of the county where you intend to negotiate and do a research about which neighborhoods have the best quality of life (less violence, better education). 

Step 3 – Focus and organization

This step is one of the most important.

After all, when you start investing in tax deeds know that there will be competitors. 

So, to get the best deals it is necessary that you organize a spreadsheet with the price of the properties that will be auctioned and the limit price that you are willing to invest in each one.

This way you will know what your limits are and you won’t let yourself be carried away by emotion.

Also, I recommend that if you are a beginner in tax deeds, do not invest in commercial or rural properties, since they have their own rules and are often more difficult to sell.

Therefore, I recommend that you focus initially on residential real estate in order to make a good profit in the shortest time possible.

Step 4 – Defining prices

Take an X-Ray of the property. 

In other words, it is very good to know the value that the properties in that neighborhood are being sold so that you know the estimated price of the property of interest. For this, it can be very good that you hire a real estate agent in order to pass all this information.

In addition, your spreadsheet should contain the address and estimated costs with the renovations. In this, I recommend that you make only those simple changes that add resale value, such as painting, plaster finishes and basic decorations.

Step 5 – Control your emotional

The time has come for the auction. The key factor to be successful in tax deed market is not to let emotions speak louder.

Follow your planning to the letter and you will be drastically limiting the risks.

So don’t let your heart speak louder than your head. This will guarantee you good auction results.


Finally, I hope you have understood everything about tax lien certificates and tax deeds.

Surely, you have realized that this kind of investment in the real estate market is not at all simple.

But we at BR Capital USA will help you a lot with that!

We will connect you to the best business opportunities so that you can acquire the tax deeds and TLC’s in the most profitable way possible.

All this, respecting ethics, honesty and the social impact involved in the negotiations!

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