BASICS
Each year, property taxes are assessed against every piece of real estate in every state and county in the United States. This real estate could be residential homes, commercial properties, parking lots, apartment buildings, vacant land etc. The local county needs and uses these taxes to fund day to day operations - such as maintaining roads, salaries for police, funds for libraries, public schools etc.
The local county would rather have the unpaid taxes up front as opposed to the expenditure and process involved in going after delinquent property owners, so these unpaid taxes are sold to investors at tax sales in the form of tax lien and tax deed certificates. This is a much easier and quicker alternative for the local taxing authority to collect delinquent property taxes.
The Investor who purchases such certificates collects penalties and interest levied by the taxing authority from the taxpayer. The Investor acquires the rights of the county or taxing unit. To the Investor, the 2 most important rights are
1. The right to collect legal lawful interest (declared by state statute)
2. The right to obtain possession of property by court eviction
A tax lien certificate is a first lien on real estate property with interest. This means that the tax lien takes precedence over all other liens, even the bank?s mortgage on the property and places the lien holder in first position.
If the property owner does not redeem the certificate by paying the Investor the amount of back taxes owed, plus interest (where applicable) and any other costs such as legal notices etc, the lien holder can force a public sale of the property to get the principal plus penalties and costs.
Property owners have a certain amount of time after the certificate is sold to catch up on back taxes. This period is called the ?redemption period? and varies from state to state, the range varying from six months to four years.