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Difference Between Tax Liens and Tax Deeds

Article writer - David Saba image

When someone refuses to Pay their Property Taxes their taxes are Classified as being Delinquent. In order to correct the Delinquent Taxes, states employ either a Tax lien or a Tax deed.

Just about everyone is well aware of the fact that paying property taxes is a part of life. However, when someone refuses to pay their property taxes their taxes are classified as being delinquent. In order to correct the delinquent taxes, states employ either a tax lien or a tax deed. It is easy to misconstrue those two methods because half the states employ a tax lien, while the other states employ a tax deed. To make it even more complex each county and state are diverse in the sense that each has a combination of so-called "universal rules" and specific rules, which are unique to their region. At this point, the questions become "What are the differences between the two processes?" and "What are the pros and cons of investing in each process?"

The tax lien

Property taxes are usually between 2,000 and 10,000 dollars, but those can change depending on the region. In order to make this process very clear, a theoretical example will be provided. Suppose someone did not pay their property taxes, which were 3,000 dollars. As an investor, you could pay that individuals 3,000 property tax and receive a tax lien certificate. That certificate would ensure you get your money. that includes interest, which ranges from 5%-35%. That is assuming the person pays their property taxes. If they do not pay that money they will be administered another tax lean. At that point, you either invest money into that same place in an attempt to get your money back or you do not put money back into that location. That process transpires until an auction occurs. You can see that it is an overall convoluted process, but it can be narrowed down to pros and cons.

Tax Liens Pros & Cons


As previously mentioned you have situations where you have competition because of an open auction. At that point, you can lose the auction, which means you will lose the money you invested in the tax lien certificate. Additionally, there can be no competition, which means you are given a property. That is most definitely a bad thing if you do not want that property. Returning to the previous example you would lose your 3,000 dollars or be stuck with a property that you never intended on getting. You might be saying something along the lines of "what if I wanted the property?" That leads to another con because you will have to battle the competitors, which are usually hedge fund people or banks.


Believe it or not there are quite a few pros to investing in lien certificates. People like to say that the lien process is "hands on" and then "hands off." What that means is you find a place that you are willing to invest in and then once you make that investment you do not have to really do much other than wait for the person to pay the taxes or for the auction to occur. All of that was originally thought of in the first decision, which means the "hands on" part was taken care of. To put it in perspective you could have invested that 3,000 dollars and had the details already figured out. Either you knew that person would pay the property taxes or you knew that you definitely were willing to invest the money to win the auction.

The tax deed

You might be saying to yourself something along the lines of "geez, can it get more complicated?" It is not going to get more complicated if you are an investor because with a tax deed you are simply investing to own that property. That means there is a real estate auction where you and the competition bid on a property. If you win you are guaranteed the property that you were bidding on.

Tax Deed Pros & Cons


The pro side of this investment is the fact that you have the potential to understand all aspects of your investment. That means you can analyze the true value of the home in order to make sure you are not paying too much money when you attend the auction. You can analyze you competitors and find out what they are willing to pay. Lastly, you sometimes have the ability to get tours of the property you are investing in, which helps you qualify your investment.


The cons of this type of investment are that it requires a lot of constant work that is deemed as "hands on." That includes all the previously mentioned tasks. Finding the true worth of the property, seeing the inside of the property, and getting acquainted with the competitors is an arduous process that changes frequently. This can become a burden if you are trying to carry out other obligations.

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