Redeemable Deed

A redeemable deed is a hybrid between a traditional tax lien certificate and a tax deed. In states that use this system, the winning bidder at a tax sale receives a deed to the property, but the original owner retains the right to reclaim (redeem) the property within a specified period by paying the purchase price plus a statutory penalty or interest rate.

This system is used in states like Texas, Georgia, and others that want to provide a strong incentive for property owners to pay their delinquent taxes while still offering attractive returns to investors. The penalty rates in redeemable deed states can be substantial — for example, Texas allows a 25% penalty for homestead properties redeemed within the first year, and 50% for non-homestead properties.

The redeemable deed gives the investor a unique position. Unlike a tax lien certificate holder who must wait out the redemption period and then initiate foreclosure, the redeemable deed holder already has a deed to the property. If the redemption period expires without the owner redeeming, the investor already owns the property — no additional foreclosure proceedings are necessary in most cases.

Investors in redeemable deed states should be aware that they may face specific obligations during the redemption period, such as maintaining the property, paying subsequent taxes, or refraining from making major alterations. Understanding these obligations and the specific redemption rules for each state is essential before investing in redeemable deeds.