The Tax Lien Certificate Money Tree


The Rundown

Tax Lien certificates can be a very lucrative and safe investment.  A tax lien is a claim against an item by another party, which utilizes that item as security for repayment of a loan or other claim. A tax lien is placed on a piece of property by the government when the owner fails to pay their property taxes.

Most counties have a Real Estate Tax Lien sale once a year.  At these sales, primarily investors bid on the tax liens that have been placed on parcels of real estate.  The bidding per tax lien begins at a high interest rate (18% in Champaign County, IL) and decreases per bid.  The investor who bids the lowest interest rate before time expires gets the lien.  The property owner then owes the new tax lien owner the amount of the lien plus the interest (interest is accrued per 6 months in Champaign County).  If the property owner continues to default on their real estate taxes, the original tax lien owner is given first priority on the purchase of the subsequent liens.  After 3 years of defaults (the time may vary per county) by the property owner, the tax lien owner has the right to foreclose and obtain the property.

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Gain an advantage at Tax Lien Auctions

Tax Lien auctions move at a very rapid pace.  There can be 2,000 tax liens to auction off or more, thus there is no time wasted.  In my experience, I’ve seen parcels sold as quick as 1 second and they typically take no longer than 5 seconds.  I know this sounds ridiculous, but I’m not joking.  Therefore, if you’re going to bid you better know what you’re doing and be prepared.

Most counties publish a list of the tax delinquent properties in the local newspaper shortly prior to the auction.  However, as a registered bidder, depending on what company facilitates the auction, you are provided with an electronic document (PDF, Excel Spreadsheet, etc.) that gives you all of the parcel information in a condensed form.  The information typically provided is the:

  • Parcel Number
  • Property Owner Full Name
  • Property Address
  • Property Mailing Address
  • Property Type
  • Property Assessed Value
  • Tax Delinquent Amount

Depending on your investment motives, the problem with the list supplied is that it doesn’t offer enough information.  If all you are worried about is earning interest on your invested money, then you’d be good to go with this basic list.  But if you’re an investor that wants to maximize their chances of foreclosing on and obtaining the actual property after 3 years of delinquency, then more work needs to be done.

Research Research Research

First off, if you want to foreclose on the property, I’m willing to bet that you don’t just want some vacant land.  So you will need to reference the county assessors records to see what the assessed value is of the land AND the building.  Needless to say if the building assessed amount is zero, there’s no 5/3/3 there either.  You can do this online in most counties.  If doing this manually for 2,000 or more records sounds tedious, that’s because it is.  Don’t do it yourself.  Automate the data compilation, I do.  Or you can hire a virtual assistant to do this for you.

Also, knowing if a property has a mortgage against it is very valuable.  If a mortgagor (a bank) realizes that the property that is collateral for their loan is going to be swiped from underneath them, you better believe that they’re going to do something about it (one main reason lenders escrow taxes and insurance for their mortgagees).  Most likely they will step in and pay the delinquent taxes.  No house for you.  This is why it’s valuable to know which properties are free and clear.  Mortgage information, or lack thereof, can be obtained per property at the county recorders’ office.  If you know that a specific property is free and clear, perhaps you’ll take an extremely low interest rate on it the first year to win the bid.  And then of course, purchase the subsequent liens if they come into existence.

It’s best to know which liens leverage the highest property value.  You want to focus your bidding efforts on investing your money in properties that you will most likely get to foreclose on and if you do, you want the highest property value per your dollar.  This is a simple formula that can be entered into a Microsoft Excel spreadsheet.  I call it the Tax/Value ratio,  simple take the delinquent tax amount and divide it my the market value of the property.  The lower this ratio is, the better.

Overall, I think the tax lien game is overlooked by many and is ripe with opportunity.  Even borrowing the money to invest in tax liens wouldn’t be a bad idea if you can get the money cheap enough.  Most bidders at tax lien auctions don’t know what they’re doing, trust me.  Do your research and you’ll be far ahead of competing bidders.  This is as close to a money tree as it gets.

About Author

Justin McClelland (G+), is a real estate investor in Houston, TX. Visit his blog MyInnerG where the rule is: Get fit, Get money, Globe trot, Give back. Socialize with him on Twitter and Facebook.


  1. I know nothing about Tax Liens and now have a ton of questions. You say that bidding is based on interest rates, but what of the real cost? How much does it cost to purchase one of these liens?

    • I have not participated in an auction yet myself but I have studied the concept. To purchase the lien you pay the amount required to bring the properties taxes up to date. This can be hundreds or thousands of dollars. There are several books on the subject.

  2. The real cost of the tax lien is the delinquent tax amount. If an owner didn’t pay $2,500 in real estate tax, then the gov’t would put a lien on the property for that amount. Then they sell it to the person who bids to take the least amount of interest on the certificate. Once the tax lien is sold, if the homeowner who was once tax delinquent pays their real estate tax, they then owe the tax amount plus interest to the tax lien holder.

    I can hardly cover it all in this comments section. And some states have Tax Deed sales, completely different process. However, a very good book on both subjects is, “Profit by Investing in Real Estate Tax Liens” by Larry Loftis. This will explain it all.

  3. You will really need to do your due diligence if the owner doesn’t pay at all and you might just be paying for fruitless raw land. A lot of these tax lien auctions are online now as well, which is great for convenience, but you do have to call and dig around to learn about what your property is worth. Lots of real estate agents don’t have jobs right now and you may be able to hire them for temporary work just looking up properties for you.

    If you are brand new, there’s lots of online reading, and it really depends on your state. I recommend having a couple of books if your just starting. As Justin said, Larry Loftis’ “Profit by Investing in Real Estate Tax Liens” is a comprehensive start and also I would add for beginners, Don Sausa’s “Complete Guide to Real Estate Tax Liens and Foreclosure Deeds: Learn in 7 Days”.

  4. Be certain check the items ?n this list f?r tax sale pr?perties bef?re y?u buy a tax lien certificate ?n the pr?perty and y?u’ll refrain fr?m taking an un-essential peril with y?ur cash. *there are very l?w annual taxes f?r the pr?perty (l?wer than standard f?r the area) *y?u can’t find the pr?perty ?n the tax map *y?u can’t l?cate the pr?perty t? c?nsider it *the pr?perty has an unkn?wn pr?priet?r *the pr?perty is land l?cked with n? right ?f way *the pr?perty is n?t big sufficient ?r n?t the c?rrect shape t? build up ?n (check z?ning) *there are pri?r tax liens ?n the pr?perty and the pri?r lien h?lder is at the tax sale *the pr?perty is ?r has been c?ntaminated (check the state envir?nmental internet site) *the pr?perty is c?ndemned ?r with regards t? t? be c?ndemned (eye-ball the pr?perty ?r check with the municipality) *the grade ?f the pr?perty is t?? steep t? build up ?n *the pr?perty is in a fl??d z?ne These are just a heap ?f reas?ns n?t t? purchase a tax lien certificate. I d?n’t want t? give y?u the inc?rrect idea. Investing in tax liens may be highly pr?fitable.

  5. As others have said, don’t just jump into this. There is due diligence on the property itself, then proper legal noticing must be done all along the way or your eventual attempt to get a deed may be unwound.

    Also, note that the overwhelming majority of tax liens against valuable properties are redeemed. That doesn’t meant that tax liens aren’t a good investment for a return on your money if you have a sufficient investment.

    Here are the top 5 traps I’ve encountered:

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