Tax Sale
Definition and meaning of Tax Sale in real estate.
A tax sale is a public auction of a property conducted by a government authority to recover unpaid property taxes. The sale occurs after the property owner has defaulted on tax payments for a legally specified period and failed to redeem the debt.
In more detail
Tax sales generally fall into two categories, which are tax deed sales and tax lien sales. In a tax deed sale, the government sells the physical property itself, and the highest bidder receives ownership. In a tax lien sale, the buyer purchases a certificate that represents the debt, allowing them to collect interest and potentially foreclose if the owner does not pay.
For real estate investors, tax sales offer opportunities to acquire properties or liens at steep discounts, though the process involves high risks, including title issues and property neglect. Laws governing tax sales and redemption periods vary by state and local municipality.
Key facts
| Category | Real Estate Investing |
|---|---|
| Organized by | Local county or municipal government |
| Types | Tax deed sales and tax lien sales |
| Risk | Property is sold as-is with potential title defects |
An investor attends a county auction and purchases a vacant house at a tax sale, paying the outstanding back taxes to acquire the deed to the property.
Frequently asked questions
What is the redemption period in a tax sale?
The redemption period is a legally mandated window of time after the sale during which the original owner can reclaim the property by paying the winning bidder the full debt amount plus interest.
Does a tax sale wipe out existing mortgages on the property?
In many jurisdictions, a tax sale forecloses the government's super-priority lien, which can extinguish mortgages and other junior liens, but buyers must conduct thorough legal research because rules vary by state.