Most investors know the difference between a tax lien and a tax deed. They understand that when they buy a lien they are not buying the property, but paying the taxes on a tax delinquent property and putting a lien on the property so that if the property owner does not pay the amount of the lien plus interest and penalties, in A set period of time (the redemption period) can foreclose on the property. And they understand that when they go to a tax deed sale and buy a tax deed, they are actually buying the property. But many would be tax investors who don’t understand what a redeemable deed is and how it differs from a bond.
What is a redeemable tax deed?
A callable tax deed is something in between a bond and a deed. When you go to a tax redeemable deed sale, you are actually buying the deed to the property. If you are the successful bidder, you will receive a deed to the property. That deed, however, is encumbered for a period of time known as the call period (not to be confused with the call period of the bonds). The owner can redeem the property by paying the amount offered for the deed in the tax sale plus a substantial penalty. If the deed is not redeemed during the redemption period, the previous owner cannot redeem the property and the holder of the tax deed is the registered owner and legal owner of the property.
What is better, redeemable deeds or tax liens?
A callable tax deed is very similar to a tax lien, but there are some important differences that I think make callable deeds a better deal for the investor. I will point out that each redeemable state treats these facts differently. In some states, like Texas, for example, when you buy a redeemable deed, you are considered the legal owner of the property and can evict anyone who may be on the property once you record the deed. The previous owner has redemption rights, but is no longer considered the rightful owner of the property. But in Georgia, which is another popular redeemable deed state, when you buy a deed you are not the legal owner of the property until the redemption period is over and you foreclose on the property. In Georgia, you must execute the redeemable deed as you would a lien to take possession of the property.
But in both states and most other states with a redeemable deed, to redeem the deed, the owner must pay the investor what they offered in the sale for tax plus a substantial penalty, not interest. What this means is that if he purchases a redeemable tax deed and it is redeemed within days of filing the deed, he still receives the full amount of the penalty. You earn the same interest on your money whether it is redeemed in 2 weeks or 2 years. A penalty does not annualize like an interest payment would.
What are the drawbacks of investing in redeemable deeds versus tax liens?
The problem with investing in redeemable deeds is that there are only 5 states that sell them and none of these states have online tax sales, so you have to show up to the auction to be able to participate in the sale. The 5 states that sell redeemable tax deeds are Connecticut, Georgia, Hawaii, Tennessee, and Texas. To learn more about investing in Tax Liens and Tax Deeds, visit http://www.TaxLienInvestingBasics.com and get your free special report on 7 Steps to Building Your Profitable Tax Lien Portfolio.
