Tax Lien Certificate

When a property owner fails to pay their property taxes, the local government places a lien on the property. To recoup the unpaid taxes, many jurisdictions sell these liens to investors through tax lien certificate sales. The investor pays the delinquent taxes on behalf of the property owner and, in return, receives a certificate that entitles them to collect the owed amount plus interest.

Tax lien certificates are considered one of the safest forms of real estate investing because they are secured by the property itself. If the property owner pays their back taxes (known as "redeeming" the lien), the investor receives their original investment plus an interest rate set by the state — which can range from 8% to 36% annually depending on the jurisdiction.

If the property owner does not redeem the lien within the redemption period, the certificate holder may have the right to initiate foreclosure proceedings and potentially acquire the property. This dual benefit — earning high interest or acquiring property at a fraction of its value — makes tax lien certificates an attractive investment vehicle.

It's important to conduct thorough due diligence before purchasing a tax lien certificate. Research the property's condition, location, and market value to ensure the investment is sound. Understanding state-specific laws governing redemption periods, interest rates, and foreclosure procedures is also critical to success.