What Is a Property Tax Lien

Aug 28, 2023 | Mortgage Guides

A tax lien is a legal claim to collect unpaid property taxes. This means the government can sell your property to collect the taxes owed.

‍Property tax liens can impact your ability to sell or refinance and make it challenging to get a loan or credit card. If you have a lien, take steps to pay it off as soon as possible.

This article will discuss property tax liens, how they work, and what to do if you have one. We will also provide tips on how to avoid getting one in the first place.

Property Tax Lien

When an individual or a business owes taxes and fails to pay them, the government can place a lien on the property or assets. The lien is created when the taxes are due and becomes a public record.  This gives the government a legal claim to the property until the debt is satisfied.

The effects subject to the lien could include real estate, vehicles, bank accounts, or other assets. If the taxes are not paid within a particular time, the lien can be foreclosed, meaning the property can be sold. The proceeds from the sale pay off the taxes, other liens, and the foreclosure costs. If funds remain, they are returned to the property owner.

Types of Property Tax Liens

  1. General lien: The most common and used to collect unpaid property taxes.
  2. Special lien: To collect unpaid special assessments, such as for sewer or water improvements.
  3. Judicial lien: To collect unpaid court judgments.
  4. Mechanic’s lien: To collect unpaid construction costs.
  5. Vendor’s lien: To collect unpaid goods or services provided to a property owner.

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Tax Lien Sale Processes

Tax Lien Redemption Process

Allows an owner to pay delinquent taxes and regain ownership. The process varies from state to state, but the following steps are involved:

  1. The property owner must petition the designated government agency.
  2. The petition must include the taxes owed, the property address, and the owner’s contact information.
  3. The tax collector or designated government agency will issue a tax lien certificate.
  4. The owner must pay the monies owed, interest, and penalties.
  5. The lien will be released once the taxes are paid, and the owner will regain the property.

Tax Lien Releases

A Certificate of Release of a Federal Tax Lien or a State Tax Lien Release is a legal document issued by a government authority, often a tax agency, that signifies the release of a lien placed on a person’s property or assets.

‍A Tax Lien Release is issued when the taxpayer has repaid the taxes or agreed to settle the debt. It serves as a notice that the lien has been removed and that the government no longer holds a claim on the property. This is essential for the taxpayer because a lien can affect their ability to sell the property or obtain credit while it’s in place.

‍Upon receiving a Tax Lien Release, the taxpayer can provide a copy to credit reporting agencies, financial institutions, or other relevant parties to prove that the lien has been resolved and the debt no longer encumbers their property.

‍Tax laws and procedures can vary between jurisdictions, so the exact process and terminology might differ depending on the specific agency and location.

Investing in Property Tax Liens ‍

How to Invest in Tax Lien Certificates

Investing in tax lien certificates is a way to earn returns by paying delinquent taxes on behalf of the property owner. The process varies based on the jurisdiction, but below are the general steps:

  • Research and Education: Before investing, educate yourself about the specific area’s process, laws, and regulations. All states and counties have rules governing tax lien sales.
  • Identify Tax Lien Auctions: Tax lien certificates are sold through public auctions. Identify when and where these auctions take place. This information is available through county or municipal offices.
  • Review Available Properties: Prior to the auction, you’ll receive a list of properties available. Determine their value, potential for redemption, and issues.
  • Due Diligence: Conduct a title search to ensure no other liens or claims against the property might affect its value or your ability to recover your investment.
  • Attend the Auction: Attend the tax lien auction in person or, in some cases, online. Be prepared with the funds you’re willing to invest. Auctions can be competitive, so set a budget and stick to it.
  • Bid on Tax Lien Certificates: When a property is auctioned, you can bid on the certificate. The bidding process varies, but in many cases, the interest rate you’re willing to accept on top of the delinquent taxes determines the winning bid.
  • Winning the Bid: If your bid wins, you’ll pay the taxes plus all fees associated with the auction. This payment is made to the county or municipal tax office.
  • Receive the Tax Lien Certificate: After payment, you’ll receive a tax lien certificate as proof of your investment. This represents the lien on the property and your right to collect the unpaid taxes plus interest.
  • Wait for Redemption: The owner has a redemption period to repay the delinquent taxes plus interest. If they do, you’ll receive your initial investment plus the interest specified by the auction terms.
  • Profit or Acquiring the Property: If the homeowner doesn’t redeem the property, you can foreclose. This process is based on local laws. Alternatively, you’ll receive your investment plus accumulated interest if the property is sold.

Strategies & Tips for Tax Lien Investments

  1. Research Jurisdictions: States and counties have varying regulations. Some areas offer higher interest rates or better opportunities for investors. Focus on jurisdictions that align with your investment goals.
  2. Education is Key: Understand the local laws, redemption periods, interest rates, and potential risks in each jurisdiction.
  3. Set a Budget: Determine how much you’re willing to invest. Bidding wars can occur at auctions, so a well-defined budget will avoid overexertion.
  4. Conduct Due Diligence: Research the property’s value, location, potential for redemption, and other liens or encumbrances. A title search ensures there are no undisclosed issues.
  5. Focus on High-Interest Properties: Some jurisdictions offer interest rates above the market rate, increasing your potential return on investment.
  6. Diversify Your Portfolio: Spread investments across multiple properties to mitigate the risk of a single property not being redeemed.
  7. Attend Auctions: Attend tax lien auctions in person whenever possible. This allows you to gauge the competition, observe bidding strategies, and make informed decisions based on real-time information.
  8. Bid Wisely: Avoid bidding wars that might increase prices. Stick to your predetermined budget and interest rate range. Remember, you aim for a good return, not just winning bids.
  9. Plan for Redemption: Understand that property owners have a redemption period during which they can reclaim their property. Be patient and plan for this possibility.
  10. Consider the Foreclosure Process: If a property owner does not redeem the property, be prepared to navigate the foreclosure process if you pursue ownership. Understand the steps involved and the costs.
  11. Consult Professionals: Tax lien investing can be complex, so consult legal, financial, or real estate professionals. They provide valuable guidance and help you avoid potential pitfalls.
  12. Be Patient: The redemption process or potential foreclosure can take time. Be prepared for a longer investment horizon.
  13. Stay Informed: Keep up-to-date with changes in local regulations, auction schedules, and market conditions.

Benefits of Investing in Property Tax Liens

  • Higher Interest Rates: Property tax liens often have higher interest rates than traditional investments like savings accounts or bonds, which can lead to higher returns.
  • Secured Investment: The investment is backed by a tangible asset – the property.
  • Diversification: Investing in property tax liens is an asset class not correlated with traditional financial markets.
  • Potential for Real Estate Acquisition: If the owner doesn’t redeem the lien, you could acquire the property through foreclosure. This could allow you to obtain real estate at a fraction of its market value.
  • Local Market Insight: Affords better decision-making when identifying valuable properties and assessing their potential.

Finding Properties with Tax Liens

  1. Check with your tax assessor’s office if they have a list of properties with delinquent taxes.
  2. Search online databases.
  3. Attend auctions.

‍When you find a property, research it before making an offer. Ensure the property is worth the lien amount and has no other encumbrances. You can also contact a real estate attorney or tax lien specialist for assistance.

Property Tax Laws

Federal & State Property Tax Lien Regulations

Federal and state lien regulations vary based on the jurisdiction and the type of taxes. Below is an overview of the regulations at the federal and state levels in the United States:

Federal Regulations

The Internal Revenue Service (IRS) enforces bylaws at the federal level. Here are some key points:

  1. Filing Tax Liens: When taxpayers owe significant back taxes, the IRS files a Notice of Federal Tax Lien (NFTL), which notifies creditors that the government claims the property.
  2. Priority: Federal tax liens have priority over other creditors’ claims.
  3. Redemption Period: The redemption period is 120 days after the debt has been satisfied or the IRS issues a Certificate of Release of Federal Tax Lien.
  4. Credit Reporting: A federal tax lien can remain on a taxpayer’s credit report for up to seven years after the debt has been resolved.
  5. Property Seizure: In extreme cases of non-compliance, the IRS can seize and sell the taxpayer’s property.‍

State Regulations 

Each state in the U.S. has its regulations and processes. These can vary, so it’s essential to understand the laws in your state. Here are some general points:

  1. Filing Tax Liens: State tax agencies can file liens when individuals or businesses owe unpaid state taxes, such as property or income taxes.
  2. Lien Sales: Some states hold sales to recover unpaid taxes. Investors purchase the liens and become the lienholders. The homeowner has a redemption period during which they can pay the owed amount plus interest to retain ownership.
  3. Interest Rates: State regulations often dictate the maximum allowable interest rates.
  4. Foreclosure: The lienholder may have the option to foreclose on the property and take ownership if the homeowner does not redeem the lien within the redemption period.
  5. Lien Priority: State regulations determine the priority of tax liens.
  6. Local Variations: Even within a state, regulations differ between counties or municipalities, so research the stipulations where you’re considering investing.

Real Estate Tax Liens & Foreclosures

How to Avoid Property Tax Liens

  • Pay the property taxes on time.
  • Contact your tax authority to discuss options if you cannot pay the taxes on time.
  • Apply for an exemption or deferral if you face financial hardship.
  • Be aware of the deadlines for a property tax exemption or deferral.
  • Keep track of the payments and ensure they are always up to date.
  • Contact your local tax authority if you have questions.‍

Property Tax Lien Resources

  • Local Tax Offices: Contact your local county or municipal tax office to inquire about upcoming tax lien auctions, regulations, and available resources. They can provide you with information specific to your area.
  • State Department of Revenue or Taxation: State-level tax agencies often provide information about property tax regulations, guidelines, and tax lien sales within the state.
  • IRS Resources: If you’re interested in federal tax liens, visit the Internal Revenue Service (IRS) website for information on federal tax lien processes, publications, and guidelines.
  • Investor Associations: Some states have investor associations or clubs dedicated to real estate investment, including tax lien investing. These groups can provide valuable insights, networking opportunities, and educational resources.
  • Online Communities and Forums: Websites like BiggerPockets and other real estate investment forums often have dedicated sections to discuss tax lien investing, share experiences, and offer advice.
  • Books and Courses: Some reputable authors and educators in the real estate investment space offer comprehensive resources.
  • Seminars and Workshops: Watch for conferences or webinars. Investment groups, educational institutions, or experienced investors might host these events.
  • Legal and Financial Advisors: Consult with legal and financial professionals. They can guide you, ensure you follow the legal procedures, and explain potential risks.
  • Online Research: Use search engines to find articles, guides, and resources. Be sure to verify the credibility of the sources.
  • Government Websites: Many local and state websites provide information about tax lien sales, redemption periods, and regulations specific to their jurisdiction.


Property tax liens can have a significant impact on your property and financial situation. If you face a lien, take action as soon as possible to resolve the issue. Many resources are available to help you understand and deal with property tax liens, including the IRS and your state tax agency. You can also contact a tax attorney or accountant for assistance.

To learn more, contact Wesley Mortgage today!

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