Anyone who owns property must pay some sort of real estate tax to the government. These taxes in turn fund numerous services, including hospitals, schools, law enforcement, road construction, parks and playgrounds. But, what happens if a real estate owner stops paying taxes? How does the county government recover this money to fund these types of services?
If a real estate owner does not pay the required taxes on a property, the county will offer the property up for sale at an auction as a "tax sale" to help generate the lost tax income. There are two types of tax sales—tax lien sales and tax deed sales. In tax lien sales, the county government sells their right to the tax lien on the real estate property, allowing the buyer to bid on the tax debt for a favorable return on investment. In tax deed sales, the county government sells full ownership and possession rights of the property to the investor. Both result in a flexible and secure investment with minimal market risk.
Tax lien sales
When bidding on a tax lien sale, you are not bidding on the deed to the property, but on the tax debt. Basically, you are loaning money to the property owner to pay his or her taxes. Usually, the respective county holds a public sale, such as an auction, for the right to collect on the delinquent taxpayer's debt. This can be a lucrative investment, as a property tax lien is usually sold for a small fraction of a property's market value. The purchaser pays the delinquent taxes to the county on behalf of the delinquent property owner. In exchange, the purchaser is given first lien position on title, ahead of mortgages, deeds of trust, and other private liens, secondary only to state tax liens. The purchaser then receives a certificate of purchase or a "tax lien certificate."
Under the terms of the sale, the investor has the right to receive interest penalty charges when the lien is paid off by the delinquent property owner, many times at a high rate of 16 to 24 percent. The purchaser also has the right to foreclose the tax lien and take title to the property if the lien is not paid.
Usually, tax lien investing is a win-win for the investor:if the delinquent taxpayer pays off the late taxes, the investor will receive the principal paid for the lien plus any interest that has accrued. If the late taxes are not paid by a specified date, the investor can foreclose and take title to the property.
Tax deed sales
Unlike a tax lien sale, a tax deed sale is when the deed to the property of a delinquent taxpayer is auctioned. The winning bidder purchases the deed to the property, becoming the new owner and obtaining all of the rights to the property free of all liens, mortgages, deeds of trust, etc.
In a tax deed sale, the property is usually sold for the back tax amount plus any fees, interest charges, and court costs. Like a tax lien sale, investors purchasing a tax deed can acquire full property rights at a fraction of the market price, since property taxes are a small percentage of market value.
How do I find a tax sale?
If you are interested in participating in a tax lien or tax deed sale, probably the fastest way to find a sale is to contact your county government's office for specific information and details about potential sales and the properties involved. Once you find out what properties are for sale, you don't have to wait for a property's auction to begin the purchasing process. You may be able to use the list of tax sales from the county to find motivated sellers who want to sell their lien or deed before the auction. Or, you can get an old tax sale list and contact the new owners of the lien or deed to see if they are interested in reselling their purchase.
As with any real estate investment, proper research of a property involved in a tax lien or tax deed sale beforehand will minimize any risks that may arise. Before your purchase, be sure to view the property and research its value. In addition, it is important to research the title for current property, in addition to any tax, judgment and/or mortgage liens, and trust deeds.
Finally, know and understand which type of sale you are attending, a tax lien or tax deed sale. Each has specific rules and guidelines which must be followed, which can differ from county to county. In addition, not all states allow tax lien and tax deed sales, so it is important to investigate your particular state's tax laws before pursuing a tax sale.
Find out more about Estate Taxes
FAQs
A tax deed sale is the sale of property for past due real estate taxes and fees associated with the sale. Each year, real estate taxes are to be paid by a predetermined date to avoid becoming delinquent. Once delinquent, the Tax Collector holds an auction to pay off the taxes.
What happens when someone buys a tax certificate in Florida? ›
On or before June 1st of each year, the county holds a tax certificate sale, giving the purchaser of the certificate a claim against the property for delinquent taxes, interest, cost and advertising fee. The auction determines the interest rate investors will receive on the certificate.
Does paying property tax give ownership in Florida? ›
In the state of Florida, paying the back taxes on a property does not automatically entitle you to ownership of that property or the ability to file a quitclaim deed. Here's why: - A legal tool for transferring an interest in real estate is a quitclaim deed.
Who gets the money from a tax deed sale in Florida? ›
When a property is sold at a tax deed sale, the proceeds first pay for the delinquent taxes and the costs of bringing the property to auction. Any surplus over the opening bid amount is deposited with the Clerk and Comptroller and subject to a registry fee.
Can property be redeemed after a tax deed sale in Florida? ›
Property may be redeemed any time prior to the issuance of a tax deed but cannot be redeemed once the Clerk has received full payment for the tax deed.
How do tax lien sales work in Florida? ›
In Florida, the tax collector will initially sell the tax lien in a tax lien sale. Then, if you don't pay off the lien, the collector can sell the tax delinquent property in a tax deed sale. Fortunately, the process will take some time, and along the way, you'll get several notices and opportunities to get current.
How long can property taxes go unpaid in Florida? ›
Property owners have 2 years from the date taxes become delinquent (April 1st) before they risk loss of the property. As stated in Florida Statute 197.502, after the 2 year period has elapsed and taxes remain unpaid, the certificate holder may file a tax deed application with the Tax Collector's office.
How long do you have to squat in a house to own it in Florida? ›
Squatters can lay claim to a property (usually abandoned, foreclosed, or otherwise unoccupied building) after living in it for a continuous period of time. In the state of Florida, for an adverse possession claim to be valid, a squatter must have lived in the property for at least 7 years.
How do I buy a property tax deed in Florida? ›
Information concerning Tax Deed sales may be obtained by using the RealAuction website or calling 877-361-7325. The research, bidding, and final payment can all be done online. Final payment for winning bids can also be made in person at the Orange County Comptroller's office.
Who is exempt from paying property taxes in Florida? ›
RELIGIOUS, CHARITABLE AND EDUCATIONAL EXEMPTIONS
Real estate owned by certain religious, charitable or educational entities that are used for religious, charitable or educational purposes is exempt from property taxation. An exemption must be applied for through the Property Appraiser's office.
Governmental liens and judgments survive the issuance of the tax deed and are satisified to the fullest extent possible with any overbid monies from the sale. Liens of governmental units not satisfied in full survive the issuance of the tax deed.
Can I sell a property with a tax deed in Florida? ›
Florida will issue the bidder a tax deed, usually within 30, possibly 40 days. Once you have the deed, you can legally sell the property.
What is the difference between a tax lien and a tax deed in Florida? ›
The main difference between the two is that with a tax lien certificate an investor is purchasing the right to collect the taxes and place a lien on a property, while with a tax deed, an investor is actually purchasing the property, by virtue of a tax deed for unpaid real property taxes, at auction.
How to stop a tax deed sale in Florida? ›
PAYING BACK TAXES. This is how to stop a tax deed sale in Florida. The simple answer is, by paying the taxes, you stop the sale. Paying the treasurer the delinquent back taxes and any late fees or expenses would stop the auction.
Does a mortgage survive a tax deed sale in Florida? ›
Does a tax deed wipe out a mortgage in Florida? Or for that matter, any state. The answer is, yes, a tax deed extinguishes a mortgage, and I'll explain why.
Is Florida a tax lien or deed state? ›
Tax Deed states auction off the real estate when property owners become delinquent. A Tax Lien state sells tax certificates to investors when homeowners become delinquent. Once the homeowner pays the taxes the investor is paid off their investment plus interest. Florida is a Tax Deed and a Tax Lien state.
How do you redeem a tax certificate in Florida? ›
To redeem the tax certificate, the property owner must therefore pay the face amount–i.e., the unpaid taxes–plus the winning interest rate. If the property owner fails to redeem the tax certificate within two years, the holder may auction off the property. This requires the certificate holder to apply for a tax deed.
What is the difference between a tax deed and a tax certificate in Florida? ›
The main difference between the two is that with a tax lien certificate an investor is purchasing the right to collect the taxes and place a lien on a property, while with a tax deed, an investor is actually purchasing the property, by virtue of a tax deed for unpaid real property taxes, at auction.
What is the tax certificate law in Florida? ›
A Tax Certificate is a enforceable first lien against property for unpaid real estate taxes. It is not a purchase of property. Florida statutes require the Tax Collector conduct a sale of tax certificates beginning on or before June 1st for the preceding year's delinquent real estate taxes.
How does a resale certificate work in Florida? ›
The user certifies that the items or services purchased will be resold when the certificate or the certificate number is issued to a seller to purchase items and services tax-exempt.
