Tax Deed

Written by True Tamplin, BSc, CEPF® | Reviewed by Editorial Team

Updated on December 14, 2022

A tax deed refers to a legal document that is issued by a government authority as a way to collect unpaid property taxes. The document allows the government to take ownership of the property in question, sell it, and use the proceeds to pay off the outstanding tax bill.

How a Tax Deed Works

In order to understand how a tax deed works, it is important to first understand the process of foreclosure.

When a homeowner fails to pay their mortgage or property taxes, the lender or government authority can initiate foreclosure proceedings. This process generally involves taking possession of the property and selling it in order to repay the outstanding debt.

When a property owner fails to pay their property taxes, the government has the right to seize and sell the property in order to collect the outstanding debt. This process is known as a tax deed sale.

What Is a Tax Deed Sale?

A tax deed sale is the process by which a government authority sells a property that has been seized due to unpaid property taxes. The sale is typically conducted by an auction where interested buyers can bid on the property.

In order to qualify to bid on the property, potential buyers must usually be able to show that they are able to pay off the entire tax bill plus any associated fees. The potential buyer is given 48 to 72 hours to make the payment. Otherwise, the sale will be canceled.

What Is the Difference Between a Tax Lien and Tax Deed?

A tax lien is filed against a property owner who fails to pay their taxes. This creates a legal claim on the property that can be enforced by foreclosure proceedings.

If you fail to pay your taxes, the government will file a notice of tax lien with the proper authorities. This document is used as proof that you owe money on back taxes. It gives them legal permission to seize your assets until you repay what you owe in full, plus interest and penalties.

A tax lien may be opened for a bidding at a public auction. The winning bidder will get a tax lien certificate that will entitle him to collect the debt from the current owner of the property.

Note that the winning bidder will only be entitled to collect the debt from the owner of the property, not a complete ownership of the property. The advantage he gets from this is earning a profit by imposing interest on the debt which needs to be repaid by the owner.

Final Thoughts

It is important for taxpayers to be aware of the differences between a tax lien and tax deed.

A tax lien gives the government permission to seize your assets until you repay what you owe in full. A tax deed, on the other hand, allows the government to take possession of and sell the property.

If you are behind on your property taxes, it is important to act quickly to avoid having your property seized and sold at a tax deed sale. Contacting a financial advisor may be able to help you find a solution that works for your unique financial situation.


Tax Deed FAQs

Can I still live in my house if it has a tax lien?

No, you cannot live in the house if it has a tax lien.

What is foreclosure?

Foreclosure refers to the process of taking possession of a property that has been used as collateral for a loan. This typically occurs if the borrower was unable to repay his debt.

How does a foreclosure proceeding happen?

A lender can initiate foreclosure proceedings against the borrower by filing a notice of foreclosure with the county recorder's office. This notice will become public record, allowing potential buyers at an upcoming auction to see that there are existing collecting debts on the property in question. The winning bidder will be entitled to collect this debt from the owner of the property and take ownership over it if they fail to pay what they owe.

What are property taxes?

Property taxes are levies imposed by state and local governments on real estate. They are used to fund public school systems, police and fire departments, and other government services.

Can I buy a house at a tax deed sale?

It depends on the state in which you reside. In some states, only the government authority can sell seized properties. In others, private parties may bid on and purchase properties that have been seized for non-payment of taxes.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.

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