How To Buy A Property With Delinquent Taxes: Step-by-step Guide

How to buy property with delinquent taxes

Many investors are looking for new investing alternatives with recent stock market volatility and low-interest record rates. Some people are considering buying a property with delinquent taxes to take advantage of lower borrowing rates. But what does it imply if a property has delinquent taxes, and how can you buy one? Here we’ll explain what a property with delinquent taxes means and give a step-by-step guide on how to buy one.

What Does a Property’s Delinquent Taxes Indicate?

Property owners are required to pay their county-imposed property taxes each year. According to the United States Census Bureau, the average American household spends $2,471 in property taxes annually. With all the other expenditures that homeowners must bear, it’s understandable that some may find themselves in a financial bind if they cannot make this payment.

Homeowners who cannot pay their property tax bills risk losing their property. If a property tax bill is not paid, the county can sell a tax lien certificate to compensate the government for the missed money.

Counties sell their tax lien certificates yearly to the highest bidder. The county may also consider the interest rate investors can charge the homeowner to recover the property tax obligation.

The investor must pay the outstanding property tax payment and any costs or penalties if a tax lien is purchased. The debt will then be reclaimed from the current homeowner, plus interest. Local guidelines determine rate limits and payment schedules.

If the homeowner does not repay their loan, the investor is granted the legal right to seize the property’s title through a tax sale.

What are Delinquent Taxes?

Unpaid taxes owed to the IRS are referred to as delinquent taxes. According to Investopedia, tax noncompliance results in additional fines and interest being charged to the bill. Filing or payment must be made within eight weeks of receiving a notice of delinquency. You can choose an installment or partial payment plan if you cannot fully settle the sum. In severe instances, the IRS may declare a person “not currently collectible” and postpone collection for a while.

If the delinquent taxes are not paid, the IRS will issue a bill for the amount owed, including penalties and interest collected since the original bill was issued. (Interest continues to accrue daily.) The IRS will use aggressive collection measures to guarantee that the obligation is paid. They have the authority to garnish salaries and even impose a tax lien on property and assets. It is best to avoid this type of situation as much as possible, as wage garnishment can be exceedingly difficult to reverse if your finances do not allow payments of the taxes owed.

How To Buy Property With Delinquent Taxes: A Step-by-Step Guide

Step #1: Find out how your county handles tax sales.

Each county has its tax sale procedure. Typically, you cannot look inside the property and must pay for it. Please inquire with your county tax collecting office about their procedures.

Step #2: Investigate the Property

If a homeowner has overdue property taxes, they may also have additional debts. Conduct your research or hire a title company to conduct a title search to see whether any other liens exist. This has the potential to make or ruin your investment.

You may lose money on the transaction if you buy other liens after purchasing the home since you must pay off all other property liens first.

Step #3: Sign up to bid on the property.

Check with your county, but in most cases, you must register your interest in the property before the auction. Find out how to write and ensure you don’t miss the deadline.

Step #4: Before the public auction, determine your maximum budget.

You’ll be bidding on the property at a public auction, so let your excitement take over. Do your research and choose your budget. Keep this number in front of you, so you don’t get carried away and bid too much.

The majority of auctions demand you to pay in cash only. This can include all cash from savings or money earned from a loan, such as a home equity loan on another property or a personal loan. You must have the money on hand for the auction.

Step #5: Participate in the auction and bid

You’ll compete with other real estate investors with similar goals at the tax foreclosure auction. Everyone wants the property, so plan your bidding strategy ahead of time so you can act quickly. The house is usually sold to the highest bidder. Understanding the neighborhood values and how much the home might be worth when you fix it up is critical. This determines whether your investment is worthwhile.

Step #6: Pay for the house if you win the bid.

If you win the tax foreclosure auction, you will usually need cash or a certified check to complete the transaction. Some counties need immediate payment, while others give you a few days to complete the transaction.

If the district court grants a few days to settle, a hard money loan is a realistic option for buying the property with delinquent taxes. If the district court mandates quick payment, you must have cash or a certified check on hand before attending the auction. So, if your bid for the house is successful, you must have a concrete and viable payment plan.

Step #7: Execution of the deed

When you complete the deal, the county hands the deed to you. This grants you ownership of the property. The county records the deed in your name, and you are free to do whatever you wish with the property.

Essential Factors to Consider When You Want to Buy a Property with Delinquent Taxes

Purchasing tax sales can be a competitive endeavor. Unfortunately, if you’re new to the tax deed market, it’s too simple to overpay for a property. This leaves very few opportunities for astute investors to earn handsomely.

Furthermore, not every property will be sold at an auction. For example, the county may not proceed with the auction if the property taxes are paid in full, or the homeowner declares bankruptcy. In certain circumstances, you may spend many hours investigating several homes, but only one is ever auctioned off.

It is possible to locate an off-market property that can provide an excellent investment opportunity. Not every property, however, will deliver a good return on investment. So, before you delve into this form of investment, make sure you know your state and county’s tax regulations and requirements. Researching previous sales will help you get a sense of the available deals in your area. It will also assist you in determining whether this investing venture corresponds with your goals and risk tolerance.

The Benefits and Drawbacks of Buying a Property With Delinquent Taxes

To buy a property with delinquent taxes can be both frightening and appealing to real estate investors. They can be risky if you don’t fully understand the issue, but they can also be discounted bargains with a lot of promise. These properties are frequently offered at steep discounts to homebuyers, landlords, and rehabbers. Tax lien certificates can be used as an investment vehicle for passive income or to acquire property. However, to determine the total value of these prospects, it is necessary to understand the procedure and timescale required and any other debts outstanding on the property.

Here are the benefits and drawbacks of homes with past-due tax bills:

The Benefits of Buying a Property with Delinquent Taxes

#1. Motivated Sellers

Every real estate investor is looking for sellers who are motivated to sell. To discover motivated sellers, many look for foreclosures, probate homes, people behind on their mortgage payments, or decrepit houses with a lot of deferred upkeep. Some of these items may, but do not always, overlap with past-due property taxes. Everything else may be fantastic. Seeking tax-delinquent properties could be an intelligent way to connect with owners serious about selling their homes quickly.

#2. Influence in Negotiations

Having some bargaining power when purchasing a new home, a second or holiday home, or an investment property is always advantageous. Buying a property with delinquent taxes entail more than just shopping for reduced prices. Experienced people understand that being able to negotiate more of the terms you desire is even more vital. Closing dates, financing, inspections, and repairs are all included.

#3. Profitable Possibilities Others Are Ignoring

In real estate, competition may be lethal. We’ve been through a long period of intense competition: bidding battles, complex agents, demanding sellers, and quick transactions. Getting ahead of or around the crowd can be incredibly beneficial. Many people believe that past-due tax obligations will eat up all of the equity or necessitate significant cash outlays up front, but this is not always the case. Tax-delinquent properties can default for as little as a few dollars. Even large liens can be settled for cents on the dollar. This has the potential to turn a dead deal into a real winner.

#4. An Opportunity to Assist

Purchasing distressed houses from motivated sellers should not be about profiting from other people’s misfortune. Some of these homeowners may have acted irresponsibly, putting themselves in this situation. Many of them are there through no fault of their own. This is an opportunity to assist folks who are suffering to pay their payments due to a divorce or natural disaster. Buying the house can help them move on and start over. Keep the property from becoming a run-down eyesore that drags down the entire area and wastes public resources.

The Drawbacks of Buying a Property with Delinquent Taxes

#1. Inadequate Equity

One issue with homes with huge past-due tax payments is that these liens can quickly consume a significant amount of equity. More American residences have begun to revert to negative equity or underwater status. Just one year of delinquent annual property taxes can add more than $10,000 to the problem. Some people owe hundreds of thousands of dollars in past taxes. In rare situations, you may locate a “cheap” house sale with more delinquent taxes than the house’s price or value.

#2. The Proverbial Tip Of The Iceberg

Past-due property taxes are often the tip of the iceberg of troubles — not always. There could be numerous past-due expenses, such as utilities, mortgage payments, insurance, etc. Alternatively, the owners may have abandoned the property due to other legal concerns, code violations, or obstacles in the rehab effort. Many of them can be overcome, but you must first understand what you are dealing with to determine whether it is a realistic transaction and at what price.

#3. Payment due at the time of closing.

If you want to receive a purchase mortgage and title insurance, you’ll need to pay these back taxes before the closing. If the seller lacks equity, this can be a significant concern. Most conventional lenders will not grant you additional funds to pay them off.

#4. Where Will the Seller Go?

If they are already in financial trouble and cannot afford to pay the taxes to save their homes, you may have difficulty finding a buyer. The most common reason that distressed sellers do not accept offers of assistance or sell, no matter how dire their condition, is that they do not know where they would relocate. Where will they take their spouse, children, aging parents, or pets who reside with them? The more you can do to assist in resolving this, the more likely it is that your offer will be accepted.

Read Also: WHAT IS A SHERIFF’S SALE? All You Need to Know

How Can I Locate Homes in My Region That Have Unpaid Taxes?

If you live in a state where tax liens or tax deeds are sold, the simplest way to do that is to obtain the local newspaper, as they will publish it in the county where you are located. You must visit the county websites if your state does not sell tax lien certificates.

How Do I Purchase Property in Texas with Unpaid Taxes?

Deeds to the property with unpaid taxes are sold to the highest bidder. Before placing an offer on a property, bring cash or a cashier’s check as acceptable payment. By placing the highest bid on an overdue tax property deed, an investor can win a bid. The winning bidder will receive a Sheriff’s deed from the county for the property.

Is It Possible to Pay Past-Due Property Taxes in Texas?

Texas’s tax foreclosure and sale procedure may result in the loss of your home if your property taxes are past due. However, Texas law gives you the option to make up the arrears before and after the tax auction in order to keep your house.

What Occurs if You Don’t Pay Taxes for a While?

Significant fines and perhaps prison time are possible penalties. Fortunately, the government only has a short window of time in which to accuse you of tax avoidance. Charges must be brought if the IRS decides to do so within six years after the due date for the tax return.


Investing in tax delinquent homes or tax deed sales is an excellent strategy to diversify your portfolio. Before investing, do your homework. Check for additional liens and ensure the property is in good condition (as much as possible). Also, be familiar with the local rules, so you know how long you have to collect on the debt or take ownership of the property.

There is a risk, as with every investment, but the payoff frequently outweighs most other investing possibilities. Tax liens and tax deed sales can diversify your portfolio in ways other assets cannot.

How To Buy a Property With Delinquent Taxes FAQs

How long can property taxes go unpaid?

If the claim is not satisfied within a reasonable time, the lienholder may foreclose on the property. This can happen somewhere between 60 days and more than 120 days.

What happens if you don't pay property taxes?

If you do not pay your property taxes on time, you may lose your house through a tax sale or foreclosure. Property owners are required to pay property taxes. These taxes pay for various government services, such as schools, libraries, roads, and parks.

How do lenders know you owe taxes?

Most lenders require one to two years of tax returns before issuing mortgage approval or house loans. Your tax return contains critical information, and lenders use it to check credit information. Your credit report tells if you owe federal or state taxes.

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