Okay, so you got your first tax lien, or tax liens at a tax sale, now what? What happens once you have a tax lien? Unlike when you purchase a tax deed, you do not have any ownership or right to the property; however, you do have responsibilities as the tax lien holder that you want to make sure to take care of to protect your investment. 

If you are late in paying for your lien(s), you could be charged extra fees, or worse, you could forfeit any winning bids and be barred from future auctions.

The very first thing you’ll want to make sure of once you’ve won the bid at a tax lien sale is to pay for any liens that you won, ON TIME! You’ll need to make sure that you have the right form of payment ready and that you understand how you need to make the payment. This will be specific to the tax sale and can differ among counties, even in the same state and on the same bidding platform. If you are late in paying for your lien(s), you could be charged extra fees, or worse, you could forfeit any winning bids and be barred from future auctions. 

Once your liens are paid for, here are some things you may need to do next depending on the state in which you’re investing:

Recording the tax lien certificate

If you don’t record the tax lien certificate in a state where it is required, you could lose your investment!

When you purchase a tax deed, you’ll receive a deed that must be recorded in the county records. Sometimes, this is done before the deed is sent to you, and you pay for the recording at the time of the tax sale. In other cases, it is something that you will have to do once you receive the deed. 

When you purchase a tax lien, however, some states do not give you a document or certificate of your tax lien, but in many states, you do receive a tax sale certificate or tax lien certificate. This is proof of your lien and is a legal government document. In these tax lien states, this certificate must be recorded with the county clerk. If you don’t record the tax lien certificate in a state where it is required, you could lose your investment! 

Here’s a real-life example…

In New Jersey, recording of a tax lien is required within three months of purchasing it at the tax sale. I was considering buying a tax lien from another investor. The lien I considered purchasing was about two years old, which means it could be foreclosed on right away. I did my due diligence on the property and saw that it was a nice property in a nice town in South Jersey. I asked the seller to send me a copy of the certificate, but when I saw the copy, I knew there was a problem, and I refused to purchase the lien.

The problem was that the lien had never been recorded, and it was way past the three-month window in which it needed to be filed in the county records. Normally, this would not be a big problem, but in this case, the property had changed hands since the lien was purchased at the tax sale, and because it had not been recorded, it was not redeemed when the property was sold.

The lien was now unenforceable, and hence, worthless. The shame is that the investor could have paid the $50 necessary to record the lien, and that would have saved him the $5,000 that he paid for the lien, and he would have made 18% per year plus a 4% penalty on that $5,000 (another $2,000!). That’s why it’s so important to know the rules before you invest!

It is not always necessary to hire an attorney once you have a tax lien, but it is advisable in a couple of states.

Noticing Requirements and Hiring an Attorney

It is not always necessary to hire an attorney once you have a tax lien, but it is advisable in a couple of states. In most tax lien states, the tax collector does all the work, but there are a few states that leave some responsibilities to the tax lien holder. There are states where the investor is responsible for sending notification of the tax lien to the property owner and any lien holders. 

Sometimes, the investor does not have to do this until just before the redemption period is over. In some states, the investor is not allowed to contact the property owner until the redemption period has ended, but there are a couple of states in which notification must be made after the lien is purchased at the tax sale. In these states, hiring an attorney is recommended, because if notifications are not done in accordance with the state statutes, you can lose any claim to the property and your investment. 

In order to do the proper notifications, the investor’s attorney will do a title search. One state that requires this is Indiana. Each county in Indiana has a specified amount they will give back to the investor upon redemption of the lien. They have a stipulated amount that they allow for the title search and an amount for the attorney’s fees for noticing. Hiring an attorney in Indiana is important. Some county auditors will not give the investor the redemption until they prove that they have hired an attorney!

Subsequent Tax Payments

When you purchase a tax lien at a tax lien auction, you are paying delinquent taxes from the prior year, or in some states two years prior, but what about the current taxes that are due now and unpaid or the future tax bills? Many states expect the tax lien holder to pay these amounts. In some states, it is in the investor’s best interest to pay them, especially in states like New Jersey where you get the statutory interest rate (18%) on your subsequent tax payments. In most states, you can pay the subsequent taxes, but you don’t have to pay them in order to keep your lien. 

No matter where you invest, you must always be sure to pay for any winning bids on time and with the proper form of payment.

In Florida, you don’t get to pay the subsequent taxes until the redemption period is over, at which point you get to do a Tax Deed Application (TDA) and pay all outstanding taxes. Once you begin the process, all your subsequent tax payments start accruing at 18% until the lien redeems or the property is sold at a tax deed sale.

These are the initial three things that you need to be concerned about after getting a tax lien and which ones you must pay attention to, depending on the state that you’re investing in—except for the first one mentioned. No matter where you invest, you must always be sure to pay for any winning bids on time and with the proper form of payment.