Sub-Taxing

Sub-taxing (short for "subsequent taxing" or "subbing") is the practice of paying subsequent years' property taxes on a property where you already hold a tax lien certificate. This strategic move increases your total investment in the property while adding the new amounts to the total the property owner must pay to redeem the original lien.

When an investor sub-taxes on a property, the subsequent tax payments typically earn the same statutory interest rate as the original tax lien certificate. This means the investor is essentially making additional secured investments at attractive interest rates. The subsequent tax amounts are added to the redemption total, and when the owner redeems, the investor receives back both the original lien amount and all subsequent tax payments, plus interest on everything.

Sub-taxing also serves a protective function. If an investor doesn't pay subsequent taxes, another investor could purchase a new tax lien for those amounts, creating a competing interest in the property. In some jurisdictions, the new lien holder could potentially interfere with the original investor's foreclosure rights. By sub-taxing, the investor maintains a singular, consolidated position on the property.

Investors should be strategic about sub-taxing decisions. It makes sense to sub-tax on properties where you've conducted thorough due diligence and are confident in the investment's fundamentals. However, continuing to invest in a property that turns out to have issues (environmental problems, title complications, or declining value) is throwing good money after bad. Careful evaluation before each subsequent tax payment is essential.