What is Tax Lien Foreclosure?

If a property owner does not pay their taxes, the county will place a tax lien certificate on the property. Tax lien certificates are often purchased by investors because they are backed by real estate. In many states, the county allows for the certificate holder to take ownership of the property through tax lien foreclosure.

Most states operate under two forms of foreclosure: judicial or administrative foreclosure.

Judicial Tax Lien Foreclosure
Judicial foreclosure requires that the process is completed through the court system. The investor should expect to pay between $2500 and $3500 in attorney fees. In an administrative foreclosure state, the tax lien foreclosure is completed through the county government. The cost is much less than in a judicial state and ranges between $500 to $1000. While it might seem more appealing to invest in an administrative state, there are pros and cons to both.

The primary advantage of investing in a judicial state is that each foreclosure is handled by a licensed attorney. This means that the attorney is liable for any clerical mistakes. The attorney will typically include a service called “quiet title.” This document is crucial to a successful tax lien foreclosure.

Administrative Tax Lien Foreclosure
When investing in an administrative state, the investor pays the fees directly to the county. The county workers will be responsible for carrying out the process of the foreclosure. However, if a mistake arises such as unfiled paperwork, the investor is responsible. Although it is cheaper to complete tax lien foreclosure in an administrative state, many investors prefer the judicial method since the attorney will submit the documents.

Smoothly completing the tax lien foreclosure process largely depends on your knowledge. It is important to do your due diligence and understand the laws of the state you’re investing in.