A tax lien is a legal claim placed on real property by a government authority—municipal, county, or federal—to secure payment of unpaid taxes, most commonly property taxes. Until the debt is paid, the lien stays attached to the title, preventing the owner from selling or refinancing the property.
Unlike a mortgage lien, which represents private financing, a tax lien is a statutory claim arising by operation of law when taxes go unpaid. It takes priority over most other liens, meaning it must be satisfied first in any sale or foreclosure.
When a property owner fails to pay assessed taxes by the deadline, the taxing authority issues a notice of delinquency. Common triggers include missed quarterly payments, annual tax hikes, or overlooked escrow shortages.
State or local law typically requires the government to send mailed notices to the owner’s last known address and publish the delinquency in local newspapers or online. Once notice requirements are met, the lien is docketed in public land records, creating a permanent record against the property.
Following a grace period defined by statute—often 30–90 days—the taxing authority issues a formal tax sale notice. This notice informs owners and junior lienholders of an upcoming auction or certificate sale date.
Most jurisdictions allow a redemption period (commonly 1–3 years) during which the owner can pay the delinquent taxes, penalties, and interest to clear the lien and retain ownership.
Interest rates on tax liens vary by state, typically capped between 8% and 36% per annum. Penalties and administrative fees may be added monthly or at fixed intervals. Total accrual is calculated from the original delinquency date until payoff.
If the owner fails to redeem within the statutory window, the certificate holder or government can initiate foreclosure proceedings or convert the lien into a tax deed sale, transferring title to the highest bidder.
The lienholder—whether the government or a private investor—has a right to collect all accrued taxes, interest, and fees. If unpaid, the lienholder can foreclose on the property or force a tax deed sale, gaining ownership subject to redemption regulations.
Owners retain the right to redeem the lien by paying the full amount due within the redemption period. They can also legally contest the lien’s validity on grounds such as improper notice or incorrect tax assessment.
Title companies perform searches to uncover existing tax liens before closing. Attorneys may represent owners or investors in redemption disputes and foreclosure actions. Real estate brokers should advise clients on potential lien exposure during due diligence.
Mortgage liens are voluntary and arise from loan agreements, while tax liens are involuntary statutory liens. Tax liens generally outrank mortgages in priority, meaning they get paid first in any sale.
Mechanic’s liens secure payment for labor or materials used in property improvements. Judgment liens arise from court awards. Both are subordinate to tax liens unless state law provides otherwise.
Because governments need a reliable revenue stream, statutes grant tax liens “super-priority” status, ensuring unpaid taxes are collected before other debts.
A tax lien certificate represents an investor’s payment of a property owner’s delinquent taxes. In return, the investor earns the right to collect interest and fees or, after foreclosure, acquire the property.
Auctions may be live at the county courthouse or hosted on state-approved online platforms. Prospective bidders register in advance, deposit funds, and submit bids on individual parcels or batches.
Bidders compete by offering the lowest interest rate they’ll accept, or by premium paid above the lien amount. Higher bids lower the interest rate but increase acquisition cost. Yields depend on statutory caps and actual redemption activity.
Most investors recoup their investment plus interest when owners redeem liens. If redemption doesn’t occur, investors may foreclose, taking title to the property and selling it to realize gains.
Tax liens can yield double-digit returns, but investors may inherit mortgage balances, environmental liabilities, or code violations upon foreclosure.
Owners often redeem early, capping investor returns. Redemption periods can extend beyond one year, tying up capital long term.
Each state sets its own rules on interest caps, redemption rights, and auction procedures. Investors must understand local statutes and nuances.
Before purchase, review county tax assessor records, land records, and local court filings to uncover existing liens, encumbrances, or disputes.
Contact the tax collector to confirm payoff amounts, including interest and fees. Obtain a payoff statement, submit payment, and request a lien release.
After payment, file the certificate of discharge or satisfaction in the county recorder’s office. Obtain confirmation that the lien is marked “released” in public records.
Redemption windows range from 6 months (e.g., Arizona) to over 3 years (e.g., Florida for certain properties). Longer periods favor owners but extend investor hold times.
Interest rates may be fixed (e.g., 18% in Texas) or auction-determined (e.g., competitive bidding in Florida). Late-payment penalties vary from flat fees to percentage surcharges.
States differ on whether liens convert automatically to tax deeds or require a separate judicial foreclosure. Some allow direct tax deed sales without a certificate phase.
A tax lien is involuntary and statutory, with super-priority status. A mortgage lien is voluntary, secured by a loan agreement, and secondary to tax liens.
Unpaid property taxes past the statutory deadline trigger a lien. The taxing authority mails notices and records the lien in county land records.
Redemption periods vary by state, typically from 6 months up to 3 years, depending on classification of the property and local statutes.
Interest accrues at a statutory or auction-determined rate. Penalties and fees are added per statute, often as flat sums or percentage increments.
Yes. If the redemption period expires, the lienholder may foreclose or obtain a tax deed, clearing title in their name, subject to any senior liens.
Order a title search and review the county tax assessor’s records. Ask the seller for recent tax statements and verify no delinquencies exist.
Obtain a paid receipt from the tax collector, file a lien release document with the recorder’s office, and confirm the lien’s removal in the official records.
Jane buys a charming bungalow only to discover a year’s worth of unpaid property taxes recorded as a lien. Her lender freezes the loan until the lien is resolved.
She orders a detailed title search, contacts the county tax office for a payoff amount, settles the back taxes plus penalties, and files a lien release. The title company updates the policy to remove the encumbrance.
Thorough due diligence, early title ordering, and prompt lien clearance are essential. For investors, understanding redemption rights, state rules, and potential liabilities ensures smoother transactions and better ROI.
