Are Tax Deeds Legal in Your State? A Guide to Investing

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  Written by Ben Mizes

Many new investors wonder whether their state does tax liens or tax deeds.

The following states hold tax deed sales:

Within each state, counties make their own rules and schedules for when tax deed properties come up for sale.

States that do not allow tax deed sales (as well as the District of Columbia) offer tax lien sales instead. Several states — FL, MA, MO, ND, OH, OK, and SD — allow both.

Tax deeds vs. tax liens

You’ll want to be clear on your county’s rules — and whether or not you’re dealing with a tax deed or tax lien situation.

When someone doesn’t pay their property taxes, a tax deed grants ownership of the property to a local government body (usually a county).

Eventually, the county will try to recoup the unpaid back taxes by selling the deed on the property.

In cases where the county is selling the actual deed to the property, you’ll be able to acquire these properties at auction.

Tax liens have a key difference: Investors aren’t bidding on the deed for the property itself.

Instead, they’re bidding on the right to collect the late fees and interest if the owner ends up paying the overdue back taxes.

What to know before bidding on tax deeds

Despite a lot of hype around tax deed investing, there’s a little dirty secret that very few mention.

Your job isn’t done when you’ve purchased a property. Even if it’s vacant — some are not — and there aren’t any immediate disasters, your job has only just begun.

When you go to actually sell that property (and extract all the equity sitting in it) you won’t be able to go to a regular title company for title insurance.

You’ll have to do what’s known as a quiet title action to clear the property for title insurance.

Alternatively, you can use a special tax deed title clearing service to help you get title insurance. These are typically much cheaper than a quiet title action, although the cost can vary by situation.

The more you know, the more problems you can avoid ahead of time. Good luck bidding!