Learn
Tax lien investing, explained
When a property owner falls behind on property taxes, many counties sell a tax lien certificate to recover the money. You pay the delinquent taxes; in return you hold a lien that earns a statutory interest rate until the owner redeems — secured by the real estate itself.
What you are actually buying
A tax lien certificate is not the property. It is a claim against the property for the unpaid taxes plus interest. The owner keeps title and can redeem the lien by paying what they owe, plus the interest that has accrued to you.
If the owner never redeems within the statutory window, the certificate holder can begin a process — foreclosure or a tax deed application, depending on the state — that can ultimately convey the property.
Why investors like liens
- Interest rates are set by statute, not the market — often well above savings or bond yields.
- The lien is secured by real estate, typically in a senior position ahead of mortgages.
- Most liens redeem, returning your capital plus interest without you ever taking the property.
- Entry costs can be low — many certificates are for a few hundred to a few thousand dollars.
The real risks
- The property can be worth far less than assumed, or be worthless (landlocked, contaminated, condemned).
- You may have to pay subsequent years' taxes to protect your position.
- Foreclosing to obtain the property costs time and legal fees, and outcomes vary by state.
- Bankruptcy, IRS liens, and procedural mistakes can delay or reduce your return.
How it works
Research the county's sale
Find the auction calendar, rules, bidding method (bid-down interest, premium, random), and deposit requirements.
Do due diligence on parcels
Check assessed and market value, senior liens, condition, zoning, and flood risk before you ever bid.
Register and bid
Register with the county or platform, fund your deposit, and bid within limits you set in advance.
Hold and track redemption
Track the redemption window and pay subsequent taxes if required to keep your position senior.
Redeem or foreclose
Most liens redeem and you collect interest. If not, follow the state's process to obtain the deed.
Tax lien states at a glance
States whose primary system is a tax lien certificate. Hybrid states that also run lien sales are covered on the Hybrid States page.
| State | System | Rate / penalty | Redemption | Notes |
|---|---|---|---|---|
| Alabama | Tax lien | 12% | 3 years | Tax lien certificates; some counties also hold tax deed sales. |
| Arizona | Tax lien | 16% max (bid down) | 3 years | Interest bid down from 16%; well-established online sales. |
| Colorado | Tax lien | 9% + federal discount | 3 years | Rate set at 9 points above federal discount rate. |
| Illinois | Tax lien | Up to 18% per period | 2–3 years | Penalty bid system; among the more complex lien states. |
| Indiana | Tax lien | 10–15% penalty | 1 year | Lien certificates with tiered penalty and a commissioners' sale. |
| Iowa | Tax lien | 2%/month (24%/yr) | 1 year 9 months | Bid-down-ownership-percentage system. |
| Kentucky | Tax lien | 12% | 1 year | Certificates of delinquency sold by county clerks. |
| Maryland | Tax lien | 6–24% (varies by county) | 6 months | Rates and premiums vary widely by county. |
| Mississippi | Tax lien | 18% | 2 years | Chancery clerk lien sales. |
| Missouri | Tax lien | 10% (+8% on subs) | 1 year | Collector's lien sales; post-third-offering deeds available. |
| Montana | Tax lien | 5/6% per month | 2–3 years | Assignable tax lien certificates. |
| Nebraska | Tax lien | 14% | 3 years | County lien certificate sales. |
| New Jersey | Tax lien | 18% max (bid down) | 2 years | Municipal lien sales; premiums common on desirable parcels. |
| Oklahoma | Tax lien | 8% | 2 years | County lien sales; deeds after continued delinquency. |
| South Carolina | Tax lien | 3–12% (by period) | 1 year | Lien sales with escalating interest by quarter. |
| South Dakota | Tax lien | 10% | 3–4 years | County lien certificate sales. |
| Vermont | Tax lien | 12% | 1 year | Municipal tax sales with redemption. |
| West Virginia | Tax lien | 12% | ~18 months | State Auditor and county lien sales. |
| Wyoming | Tax lien | 15% + 3% | 4 years | County lien certificate sales. |
| District of Columbia | Tax lien | 18% | 6 months | Annual lien sale conducted by the Office of Tax and Revenue. |
General reference only — systems, rates, and redemption periods vary by county and change often. Verify with the county and local counsel before bidding.
Frequently asked questions
- What interest rate do tax liens pay?
- It depends entirely on the state. Statutory maximums range from single digits to as high as 18% or more, though competitive bidding (bidding the interest rate down, or paying a premium) can reduce your effective return.
- What is a redemption period?
- It is the window during which the delinquent owner can repay the taxes plus interest and cancel your lien. It commonly ranges from six months to three years depending on the state.
- Do I get the property?
- Usually not. Most liens are redeemed, so you receive your money back plus interest. Only a small fraction go unredeemed to a foreclosure or tax deed step that can convey the property.
- Is tax lien investing passive?
- Less than it looks. Sourcing sales, doing due diligence, paying subsequent taxes, and handling redemptions or foreclosures all take work and local knowledge.
Go deeper inside TLWB
Members get structured video training, state guides, checklists, and a community that has stood at the auction.
Become a member