|Tax Liens and Tax Deeds - Some Basics for Your Success
We have all heard the stories and heard the claims about tax foreclosure sales. You know the
stories where someone purchases a house or property for $1,000 dollars with a true market value of
$50,000. They then turn around and sell it for a huge profit. In fact everywhere I turn someone is
talking about the wonderful purchase opportunities that tax sales and tax liens can hold. Before I
started investing in tax sales my first question was, "If this is such a great investment technique,
why is it that I have not heard about it? There had to be a catch, something that no one was telling
me about this technique." The truth is that you can gain a very favorable return by purchasing tax
lien certificates and tax deeds, but as with everything you need to learn from other people's
knowledge, use common sense, do your research, and stay positive!
The General Tax Sale Process
Almost all states allow for a tax sale foreclosure process that allows common citizens, just
like us, to purchase tax sale properties. Here's how it happens:
If an owner of real property does not pay their taxes the county or the taxing entity will
file a lawsuit to collect the unpaid taxes, and if such taxes are not paid, the property will be sold
at a public tax auction to the highest bidder.
The certificate or tax deed will be sold at a public auction and the opening bid will typically
be made up of the amount of back taxes owed. This amount will usually be made up of:
- Delinquent Property Taxes
- Interest Charges
- Penalty Fees
- Legal Costs
- Administrative Charges and Fees
When a tax certificate or a tax deed is sold, the purchaser acquires the rights held by the
county or taxing unit. Tax sales may be held annually, semi-annually, quarterly, or monthly. There
are no restrictions for bidding in these sales (i.e., you do not have to be a real estate agent,
professional investor, etc.); however you usually must be able to pay the bid amount within a short
period of time.
For a specified period of time the delinquent owner has the right to buy back or "redeem"
the property. This is called the right of redemption. In many cases this redemption period may be as
short as 6 months or in states such as South Dakota and Wyoming, as long as 4 years. If the delinquent
owner does not redeem the property during the specified time, then the successful bidder is entitled
to the property regardless of the purchase price. Let me say that again: the successful bidder would
be the owner of the property even if it was bought for $1,500 and it has a market value of $150,000!
That sounds great, but what happens if the delinquent owner decides to exercise their right of
redemption? Do I lose my deal and all the money I spend at the action? No not at all! In that case
they (the delinquent property owner) must pay you an interest penalty charge on top of what you
originally paid for the property. This interest charge could be from 10% to 25% (for redemptions
occurring during the first year) or up to 50% (for redemptions occurring during the second year).
What this means is that you will get back the money you originally invested plus the interest charge
while the delinquent owner will get their property back.
So in most cases either you purchase real property for pennies on the dollar or gain a high
rate of return on the money you used to purchase the property!
Here is list of the returns paid out at redemption for various states. Remember redemption
refers to the statutory or legal right for the original owner to buy back the property.
||12% per annum
||16% per annum
||18% per annum
|| 20% first year
40% second year
||24% per annum
||12% per annum
||18% per annum
||14% per annum
||12% per annum
||12% per annum
||25% first year
50% second year
Let's look at an example so you can clearly understand how the redemption return works:
George attends a tax foreclosure sale and he is the successful bidder. He files the deed with
the County Clerk or Recorder's Office. Four months after the deed is recorded the delinquent
property owner "redeems" the property. George receives his initial investment back
Here you can see that George was the successful bidder on the tax sale property and he received
a tax deed at the auction (more on the difference between deed states and certificate states in
a later article). Also note that since the original owner redeemed the property she must pay
George the original amount invested plus the state mandated penalty return.
What Happens If the Owner Does Not Redeem?
If the property owner does not redeem you will typically get title to the property. That's right
title! Remember what I said above: If the delinquent owner does not redeem the property during
the specified time period then as the successful bidder, you would be entitled to the property
regardless of the purchase price. Let me say that again: you would be the owner of the property
even if you bought the property for $1,500 and it has a market value of $150,000!
Alright…But What Kind of Deals Are Out There
Tax auctions can allow you to buy some pretty substantial real estate for pennies on the dollar.
Let me show you some examples from my state of Texas that went to sale last year:
Tax Sale Listings from Harris County:
||Estimated Minimum Bid
||HOUSTON INDEPENDENT SCHOOL DISTRICT, ET AL VS. LOUIS ZINGELMANN, ET AL
||HOUSTON INDEPENDENT SCHOOL DISTRICT, ET AL VS. ROBERT P NORMAN, ET AL
||CYPRESS-FAIRBANKS I.S.D. VS. 8916 TAUB ROAD INC
||HARRIS COUNTY VS. HOMECRAFT LAND DEVELOPMENT INC
||HOUSTON INDEPENDENT SCHOOL DISTRICT, ET AL VS. G L PARR, ET AL
||CITY OF HOUSTON, ET AL VS. TUDOR PROPERTIES INC.
||HOUSTON INDEPENDENT SCHOOL DISTRICT, ET AL VS. DELORES SALAZAR
||HOUSTON INDEPENDENT SCHOOL DISTRICT, ET AL VS. HERMAN WHITE
Can you figure out why I shaded some of these property listings? These would obviously be the best
deals to investigate and start researching immediately.
Word Of Advice
The shaded deals look great, right? Yes, they sure do but you MUST realize that tax sale listings can
be fairly complicated to understand and read correctly. I have run across situations where the
significance of one just number before a dash or hyphen can make or break the WHOLE deal! So I want
to warn you that nothing comes without its hard work and proper knowledge. For every good deal that
you find there are 100 that stink! The best route for the new and experienced investor is to keep
learning, asking and researching new opportunities. Always invest in your education and find the
Don't Ever Stop Learning and Never Give Up
No matter what happens you should never give up on learning or give in to the dark riders of
failure and fear. Did you know that fear motivates more human action than any other emotion combined?
Sadly fear stops many people from trying to learn new things. And you know I don't blame them!
Sometimes it's really hard to keep learning and growing when you always seem to get knocked down.
I got knocked down a bunch of times then decided that I just had to find a way to make things
work. I started to change my mental attitude and think only positive thoughts, see myself doing
the things I was destined to do, and completely fulfilling my purpose in life. I decided to go
forward regardless of the cost, regardless of the fear and learn new ways to earn income and new
ways to help others.
I realized that the more I learned about investing the safer my financial future would become and
the more I would be able to enrich the lives of others. I thank everyone for reading my article
and being interested in tax sales. Proper information is important so always ask the right
questions and find real mentors who have a passion to help.
Don't forget that this is just information. The real wealth is inside us all. It comes from the
power of our minds. So let's open our eyes to all the new things in front of us, let's open our
hearts to the person we were born to become and towards bright prosperous lives of abundance.
Applied faith and knowledge are always your first two steps!
Information contained within this article was not intended to be, nor should it be taken by the
reader as legal, financial or tax advice. The above article was written for educational purposes
only. If the services of a Texas attorney, or real estate mentor or coach are desired please
contact Mr. Barazandeh or seek the services of another professional.
The author, Darius M. Barazandeh, Esq. is a licensed attorney in the state of Texas. In addition
to his legal knowledge he has a Masters Degree (M.B.A.) in Business Finance and brings experience
from numerous fields including tax sale investing, real estate construction, corporate finance,
and business consulting. Frustrated by the lack of realistic information regarding tax foreclosure
sales and other investments, he is "unlocking the secrets" to many of these creative
investment methods with his unique 'clear cut' writing style, attention to detail, and legal
knowledge. His product Texas Houses
for Pennies is the highest rated tax foreclosure guide in
the United States! 
Current Membership Includes:
- Real Estate, Probate, and Trust Law Division of the Texas Bar Association
- Business Law Division of the Texas Bar Association
- Taxation Division of the Texas Bar Association
- Environmental and Natural Resources Division of the Texas Bar Association
- Alternative Dispute Resolution Division of the Texas Bar Association
- Consumer Law Division of the Texas Bar Association
 According to the Real Estate Investment Depot,
Texas Houses for Pennies has
received a customer rating of 9 out of a possible 10 points.
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