Tax Deed

A tax deed is issued when a property owner has failed to pay property taxes for a specified period and the taxing authority sells the property to recover the unpaid taxes. Unlike tax lien certificates, where investors purchase the debt, tax deed sales transfer actual ownership of the property to the winning bidder.

Tax deed sales are common in states that do not use the tax lien certificate system. In these sales, the property is typically sold at a public auction, and the winning bidder receives a tax deed conveying ownership. The starting bid often equals the total amount of delinquent taxes, penalties, and fees owed, meaning investors can sometimes acquire properties well below market value.

One important consideration with tax deeds is that the title may not always be "clean." Previous liens, mortgages, or other encumbrances may still affect the property, and a quiet title action may be necessary to clear the title before the property can be resold or developed. Some states offer a redemption period even after a tax deed sale, giving the original owner a limited time to reclaim the property by paying all amounts owed.

Tax deed investing can yield significant returns, but it requires careful due diligence. Investors should research property values, inspect properties when possible, and understand the specific laws and procedures in the jurisdiction where they plan to invest.