If you are behind on property taxes, you run the real risk of being faced with a tax sale. If you’re wondering, “how do tax sales work”, don’t worry, you’re not the only one. In real estate there are two types of tax sales: tax lien and tax deed. The only similarities between these two types of tax sales is that they both involve unpaid property taxes. Each type of tax sale works a little bit differently than the other and what one you will be faced with depends on the state you live in. With both of these types of sales, the homeowners is notified in advance of the delinquent taxes, the sale will only go forward if the homeowner fails to pay the past amount due.

Tax Lien SaleTax Lien

A tax lien sale is where the lien itself is auctioned off to the highest bidder. Whoever wins the bid in a tax lien sale is now responsible for collecting the amount owed, as well as interest that has accrued, from the owner. If the owner cannot or will not pay the lien, the property can be foreclosed on by the lien owner. The great thing about tax lien sales is that they give property owners the chance to pay the taxes owed, as well as any fees, so they can keep their home.

Once the homeowner fails to pay their property taxes, there is a waiting period. The duration of the waiting period depends on the state, but it can be anywhere from a few months to a few years. Once the waiting period is over, the tax collectors issue a letter to the homeowners with an intent to auction off the lien. The letter warns the homeowners that in two weeks the sale will be published in the newspaper, which means the auction will take place on said date. On the auction date the lien is auctioned off to the highest bidder, who then takes ownership of the lien. The tax collector then collects the money from the new lien holder and uses it to pay the unpaid taxes.

Tax Deed Sale

A tax deed sale offers up actual ownership of the property. This type of sale is not used in all states, but several states do practice this type of sale. Once a homeowner neglects to pay their property taxes, the government can step in and seize the property. Once the government seizes the property they have the authority to sell the property at a public auction, which can also be referred to as a foreclosure auction.

With a tax deed sale, the auction price usually starts off at the amount of back taxes owed, plus any fees or interest that has accrued. However, that doesn’t mean it will sell for such a low amount. In tax sales many times the bids are driven higher because so many people are interested in purchasing the home.