What Exactly Is a Tax Defaulted Property Auction?

To answer the question: “What is a tax defaulted property auction?” First it is helpful to know why these auctions are held.  Local governments (county, city, township, town, parish) receive the majority of their funding from property taxes.  If those taxes are unpaid for an extended time the local governments must take action to collect delinquent taxes, one method is to make a demand for payment and if that payment is not forthcoming the government sells the property to the highest bidder at the auction, in about half the states; the other half sell tax lien certificates.  Simply put, a tax defaulted property auction is an auction by the local government to collect delinquent property taxes.

Tax defaulted property auctions are held by local governments throughout the year, as often as once a month in some local counties.  The laws regulating the auction are set by the state legislature and enforced at the local county/ municipality government level.  The  laws can be different from state to state, enforcement can vary within a state depending upon the county or municipal rules of the sale.  There are many common features of a tax defaulted property auction that apply in each individual auction, but the rules can vary, so it is essential that you know the rules of each auction before bidding.  Here are some features that that are common to most tax defaulted property auctions:

When buying at a tax defaulted property auction the bidding starts at the back taxes due the local government and the price is bid up, as in a conventional auction.

Most liens on a property (mortgage, deed of trust, mechanic’s liens) are removed when the property is sold at a tax defaulted property auction; only government liens typically remain.

After an auction, a few states have a period of redemption (one year or less), where the delinquent tax payer has one last chance to pay the taxes and restore their full ownership rights to the property, before the tax deed buyer can take possession of the property.  Most states have no period of redemption, meaning as soon as the tax deed you’ve purchased is  paid for with the local government, you own the property free and clear for the price you paid at the auction.

Ted Thomas has guided and taught thousands of tax deed investors the process and how to understand: “What is a tax defaulted property auction?” and the techniques used by many successful tax deed investors to find the most profitable properties.  Over the past 25 years Ted Thomas has become known as America’s Tax Lien Certificate and Tax Deed Authority.

Find out more about the related question:

What is a tax lien and how do they work?