How to Buy Land by Paying the Back Taxes

As a property owner – whether land or home – particularly in the United States, you will be required to pay property taxes, which are levied by the county every year. On average, the tax amount is around $2000 per year, which is quite a hefty amount for some owners to pay. And for this reason, some owners default on the payments, which results in the county governments confiscating the property from the owner. This is in the exercise of a tax lien, which gives the government the right to seize the property in lieu of unpaid taxes, which they later sell to cover them. So, as an investor, you have an opportunity to buy the property/land by paying the back taxes. But whether or not you acquire ownership of the property depends on the actions of the homeowners. In this article, we are going to tell you how to buy land by paying the back taxes.

How does it work?

Basically, when the local government takes the land from the owner, interested investors are invited to buy the property from the government. However, they don’t get ownership right away. The investor can decide to pay off the back taxes owed to the municipality on behalf of the landowner, who will then refund the investor this amount, plus interest, during the set-aside redemption period. Now, if the owner fails to repay this amount, then the investor has a tax lien that enables him or her to acquire the property’s ownership legally.

Before we take a look at how you can acquire such a property, there are two terms that we need you to understand; a tax deed sale and a tax lien sale. The former represents the situation where the investor obtains ownership of the property at the auction, while the latter is more of an investment, whereby the investor only gets the tax lien certificate, after paying the back taxes, which entitles him/her to the property’s ownership in case the property owner fails to repay the amount to the investor.

How can you buy a property with back taxes?

When talking of tax lien sale, here is how you can obtain the certificate:

At a public auction – basically, the amount the investor pays at a public auction includes the tax amount plus any other penalties against that particular property, and since the auction happens once a year, so is the issuance of the certificates. You are given time to prepare for the auction, and that includes time to do your due diligence on the said property before bidding on it. Now, there are two main auction methods; one is where one bids the minimum interest amount they are willing to accept. The minimum allowable interest, however, varies from state to state, where you find in some states being as high as 18 percent, and that’s where the investors start their bids.

The second auction method is where the investor bids a premium on the lien certificate. This means that you are buying the tax lien, which you do by paying the amount the property owner owes the local government, including the back taxes, penalties, and interests. During the auction, it is the investor who pays the highest premium who wins the bid.  

Be sure to follow through on the investment – here is the thing, winning the bid is just the beginning. There will, of course, be a long way to go on your investment. Now, the first thing that you need to pay attention to is the redeemable aspect of the tax lien. This is the redemption period given to the homeowner to repay the amount paid by the investor for the tax lien to be removed. This period ranges from several months to a few years. Also, as the investor, you need to confirm whether you will need to purchase subsequent tax liens during the redemption period. In some counties, you may find the government issuing tax liens each year the homeowner doesn’t pay the taxes. And that their laws allow newer tax liens to take precedence of the older ones. Lastly, once the redemption period lapses, you, as the investor, will have the opportunity to pursue foreclosure, but you must notify the owner of the same, and follow the local guidelines set out.       

So, how can I find land with back taxes to invest in?

If you are looking for vacant land to invest in, all you need to do is to visit the local property tax collector, which is essentially the government entity that puts the tax lien on that property. You will find a list of all the properties with back taxes, the amount owed, as well as, the status of the tax owed. All this is information that is in the public records, and it’s info that you need to analyze properly before you proceed with the investment. Other than the tax amount owed and the status of the property, you also need to find out the address of the property; who the owner is; the date of purchase; the value of the property (or the amount the owner paid for it); and the appraised value. Since the county government is supposed to advertise property tax sales before the auction, or actual sale, all this information must be availed.  

Mistakes to avoid

There are two mistakes that you have to avoid when bidding for the land in the auction;

The first mistake is failing to find out more info about the land before paying for it. We have already mentioned due diligence, which includes finding out more about the location, and everything else there is to know about the land. Find out more information before you start bidding. If you can’t do this by yourself, get someone you can trust to do it for you.

The second mistake is something that’s quite common in auctions, where the bidders get a little over-excited in the process and start bidding without an exit strategy. You have to find out if you can resell the property in case you get its ownership. If you can’t, just don’t buy it, period!

Final word

Even if you remember everything, just don’t forget one thing: you must have more information on the property before buying it. You must know what you are putting yourself into before it’s too late. Don’t do it blindly!