Demystifying Tax Deeds: Everything You Need to Know


Discover the intricacies of tax deeds in this comprehensive guide. Learn about tax deed sales, redemption periods, and the crucial differences between tax deeds and tax liens. Uncover the consequences of failing to pay property taxes and how to clear a tax deed. This in-depth exploration leaves no stone unturned.

What is a tax deed?

A tax deed is a significant legal document that comes into play when property owners don’t pay their property taxes. It’s like a key that can transfer ownership of a property to a government entity. This happens because property taxes are super important for funding important things like fixing roads, providing education, keeping the water running, and even supporting law enforcement. Property owners are supposed to pay these taxes to their local government, but sometimes they can’t or forget.
When property taxes aren’t paid, the government usually steps in to make sure they get what’s owed to them. They follow some specific steps to do this. They notify the property owner about the unpaid taxes, then they apply for something called a tax deed, and sometimes they even post notices on the property and tell everyone about it. Eventually, they hold an auction to sell the property, and this whole process is known as a “tax deed sale.”

Understanding a tax deed

Tax deeds are like a safety net to make sure the government can get the money they need to run things smoothly. When property owners don’t pay their taxes, the government takes these special steps to sort things out. This can be a bit different depending on where you live, but the main idea stays the same.
Now, here’s where it gets interesting. In a tax deed sale, the property with overdue taxes is put up for auction. People who want to buy the property can participate, but they have to make an offer that covers not only the unpaid taxes but also the interest on those taxes and the costs of the sale. The highest bidder at this auction becomes the new owner of the property. But here’s the catch – they have to pay the full amount they offered within a certain time, usually 48 to 72 hours.

Sometimes, if the winning bid is more than what’s owed in taxes and costs, the extra money might go back to the original owner. But this depends on the rules in your area. Some places also have a “redemption period,” which is like a second chance for the original owner. During this time, they can pay what they owe and get their property back. But if they don’t, the highest bidder can start the process of taking full ownership of the property.

Special considerations

Now, things can get a bit different depending on where you live. Some places transfer the property right away to the winning bidder, while others offer a “redemption period” like we talked about. This period gives the original owner a chance to make things right and keep their property. If they don’t act during this time, the highest bidder can take steps to fully own the property, which usually involves a foreclosure process.

Tax deeds vs. tax liens

Tax deeds and tax liens are connected, but they work in different ways. Tax deeds lead to the transfer of property ownership because of unpaid taxes, while tax liens are more like a legal claim against a property when taxes aren’t paid. Tax liens are usually sold at auctions too, and people who buy them might get simple interest on the unpaid tax amount.

Example of a tax deed sale

Let’s break this down with an example. Imagine there’s a property valued at $100,000, and the owner hasn’t paid $5,700 in taxes. At the tax deed sale, the highest bid is $49,000. Now, here’s how it works: the county first takes the $5,700 for the unpaid taxes, and the rest, which is $43,300 ($49,000 – $5,700), goes back to the original owner. Along with that money, the original owner also gets the title to the property, so they get something back even if they lose the property.

What happens if I do not pay property taxes?

Not paying your property taxes can lead to some serious consequences. The government can step in, take your property, sell it to get the money they’re owed, and give ownership to someone else. But remember, the exact process can vary depending on where you live and the rules your local government follows. It’s essential to stay informed about property taxes to avoid any surprises.


Here is a list of the benefits and drawbacks of tax deeds.

  • Provides a method for local governments to collect overdue property taxes.
  • May offer investment opportunities for buyers at auction.
  • Can lead to the acquisition of property at a potentially lower cost.
    • Original property owners may lose their property.
    • Strict timelines for payment after winning a tax deed auction.
    • Excess bid amounts may not always be refundable to the former owners.

Frequently asked questions

Can the original property owner reclaim their property after a tax deed sale?

Yes, some states offer a redemption period during which the original owner can pay their debt and regain ownership.
However, this period’s duration varies by location.

What happens to the excess bid amount at a tax deed sale?

The fate of excess bid amounts depends on local regulations. In some cases, the original owner can claim it within a
specified timeframe, while other states may forfeit it.

Are there differences in tax deed processes among states?

Yes, the specific steps and timelines for tax deed sales can vary significantly from one state to another. It’s
essential to understand local laws if you’re involved in a tax deed auction.

Do all municipalities conduct tax deed sales?

Not necessarily. While property taxes are widespread, the process of conducting tax deed sales may vary among
municipalities. Check with your local government for specific information.

Are there any alternatives to a tax deed sale for property owners?

Some property owners may explore alternatives like payment plans or negotiating with tax authorities to avoid a tax
deed sale. It’s advisable to seek professional guidance in such situations.

Key takeaways

  • A tax deed grants ownership of a property to a government body when the owner fails to pay the associated property taxes.
  • Tax deeds are sold to the highest bidder at auction for a minimum bid of the outstanding taxes plus interest and the costs associated with the sale.
  • Successful bidders have a minimum amount of time to pay for the purchase—usually 48 to 72 hours.
  • At the close of the auction, the county receives the total delinquent tax assessment, and the former owner receives the net proceeds after taxes and penalties.
  • Property owners may file a claim to receive any amount paid to the municipality in excess of the property taxes plus interest.
  • Tax deeds provide local governments with a method to collect overdue property taxes.
  • Investors may find investment opportunities through tax deed auctions.
  • Tax deeds can lead to the acquisition of property at a potentially lower cost.
  • Original property owners may lose their property if they don’t address the tax delinquency.
  • Strict timelines for payment exist after winning a tax deed auction.
  • Excess bid amounts may not always be refundable to the former owners.
  • Tax liens, a related concept, are legal claims against a property when taxes remain unpaid, often sold at auction.
  • Clearing a tax deed involves settling all tax obligations, including penalties and interest.
  • Failure to pay property taxes can lead to the government seizing the property and transferring ownership to a new owner.
View Article Sources
  1. Tax deeds and lis pendens – University of North Dakota
  2. Effect of tax deeds on easements appurtenant and rights of way – Chicago Kent College of Law
  3. Tax deed process – Montana Legislature
  4. Buying a house with a tax lien? here’s what you need to know – SuperMoney