By LocateMyWealth · Published
What Are Tax Deed Auctions?
When property owners fail to pay property taxes for several years (typically 2-5 depending on state), the county can sell the property at auction to recover the owed taxes.
Tax Deed States sell the actual property to the highest bidder. Tax Lien States sell the debt, with property transfer only if owners don't redeem.
This guide focuses on tax deed auctions where you can acquire properties for pennies on the dollar.
Research Process
Step 1: Get the Auction List
Counties publish lists 30-90 days before auction. Find them at:
- County Tax Collector website
- County Treasurer website
- Published in local newspaper (legal requirement)
Step 2: Initial Filtering
Quickly eliminate properties not worth pursuing:
- Landlocked parcels (no road access)
- Tiny lots under buildable size
- Properties with environmental issues
- Mobile homes on rented land
Step 3: Title Research
Search for liens that survive the tax sale:
- IRS liens (survive for 120 days)
- Municipal code enforcement liens
- HOA super liens
- Special assessments
Critical: Use a title company or do thorough public records research.
Step 4: Property Research
For each viable property:
- Drive by and photograph
- Check Zillow/Redfin for estimated value and sales history
- Look up permits (major work = potential issues)
- Check flood zone status
- Verify zoning and buildability
Calculating Maximum Bid
The MAO Formula
Maximum Allowable Offer = ARV × 0.70 - Repairs - Holding Costs - Profit
Where:
- ARV = After Repair Value (comparable sales)
- 70% = Equity cushion for safety and profit
- Repairs = Estimated renovation costs
- Holding Costs = Taxes, insurance, utilities during ownership
- Profit = Your minimum acceptable profit
Example Calculation
| Item | Amount |
|---|---|
| ARV (Comparable Sales) | $150,000 |
| × 70% | $105,000 |
| - Estimated Repairs | -$30,000 |
| - Holding Costs (6 mo) | -$5,000 |
| - Desired Profit | -$20,000 |
| Maximum Bid | $50,000 |
Factor in Unknown Risks
Tax deed properties have higher unknowns:
- Can't inspect interior
- May have squatters
- Title issues possible
- Unknown deferred maintenance
Recommendation: Add 20-30% to repair estimates and reduce max bid accordingly.
Auction Day Strategy
Before the Auction
- Arrive early to register
- Bring required funds (certified check or cash deposit)
- Have your max bids written down—don't rely on memory
- Scout the competition
During the Auction
- Stick to your max bid. Emotions run high at auctions.
- Let others bid up first; join late in the bidding
- Watch for distressed investors (may know something you don't)
- Be patient—some properties get no bids
After Winning
- Complete payment within deadline (often 24-72 hours)
- Secure the property immediately
- File for eviction if occupied
- Get title insurance if possible
Risks and Pitfalls
1. Redemption Rights
Some states allow previous owners to redeem the property after auction. Know your state's laws.
2. Hidden Liens
Not all liens are eliminated. IRS liens, municipal liens, and HOA liens may survive.
3. Property Condition
You're buying sight unseen. Major structural issues, mold, or environmental contamination can destroy your profit.
4. Overbidding
Competition has increased with online auctions. Many properties sell above fair value.
5. Auction Addiction
Don't fall in love with the "deal." Stick to your numbers and walk away when needed.
Conclusion
Tax deed auctions can yield incredible deals, but they require thorough research and discipline. Start by attending auctions without bidding to learn the process, then gradually increase your involvement as you gain experience.
Frequently Asked Questions
What's the difference between tax liens and tax deeds?
Tax lien states sell the debt, giving you interest payments. Tax deed states sell the property itself. Tax deeds offer property ownership but require more upfront capital and research.
Can I inspect properties before a tax deed auction?
Usually not interior access. You can drive by, research public records, and sometimes peek through windows. Always factor in unknown condition risk in your bid.
Are tax deed properties sold 'as-is'?
Yes, with no warranties. You may inherit property issues, unrevealed liens (like IRS or municipal), and deferred maintenance. Research thoroughly before bidding.
How do I find tax deed auctions in my area?
Check your county tax collector or treasurer website. Many counties post auction lists 30-90 days in advance. Some use online platforms like GovEase or Bid4Assets.