How Tax Lien and Tax Deed Sales Work in Every State

What Is a Tax Sale?

Property tax is a lien on the land from the day it is assessed. When the owner stops paying, the local government recovers the money by selling something at public auction, usually once a year. What it sells depends on the state. In a lien state you buy the right to be repaid the tax plus interest. The owner keeps the home and can pay you off. In a deed state you bid on the property itself, and the owner’s last chance to pay ends before the auction. A redeemable deed state sells the property but lets the owner buy it back for a set period by paying your price plus a premium, such as Georgia’s 20% for the first year under O.C.G.A. § 48-4-42.

“Tax lien” also describes a federal lien for unpaid income or other federal tax, created by 26 U.S.C. § 6321. These pages cover only property-tax sales. Start with what is a tax lien for the basic terms.

How Do Tax Lien Sales Work?

At a lien sale, the county sells a certificate for the unpaid tax. You pay the tax, penalties and costs. The certificate earns interest at the rate set by the auction. Most lien states use a bid-down auction, where bidding starts at the statutory maximum and the lowest rate wins. Florida caps the rate at 18% a year in section 197.172 of the Florida Statutes and accepts bids in steps of one-quarter of 1% under section 197.432(6). Arizona’s maximum is 16% a year, simple (A.R.S. § 42-18053). Iowa fixes the rate at 2% a month and has bidders compete for the smallest share of the parcel instead (Iowa Code §§ 446.16 and 447.1).

The owner can redeem during a waiting period. If they don’t, you can apply for a deed or foreclose, after 2 years from April 1 of the year of issue in Florida (Fla. Stat. § 197.502) or 3 to 10 years after the sale in Arizona (A.R.S. § 42-18201). Tax lien investing covers the returns and the math.

How Do Tax Deed Sales Work?

In a deed state, the county or state first takes the property, or gets a court judgment, after a long delinquency. California waits 5 years of default before it can sell (Cal. Rev. & Tax. Code § 3691). Michigan forecloses about 2 years after delinquency (MCL 211.78g and 211.78k), and Texas sheriffs and constables sell on the first Tuesday of the month (Tex. Tax Code § 34.01). Bidding opens at the taxes and costs owed, and the highest bid wins. You get the property, often with a deed that title insurers won’t cover until a quiet-title action clears it. Read tax deed sales for the full process.

What Happens to the Surplus?

When a property sells for more than the tax debt, the extra belongs to the former owner. In Tyler v. Hennepin County (2023), Minnesota sold a condo for $40,000 to collect about $15,000 and kept the remaining $25,000. The U.S. Supreme Court held that the owner had stated a claim under the Takings Clause. Since then Arizona, Colorado, Minnesota, New Jersey, New York and other states have changed how surplus is paid out, and Illinois created a surplus equity fund in 2026 (P.A. 104-0553, from the enrolled text of HB 4537). That matters to buyers because it changes who bids, how long sales take, and whether a holder can still take a deed without an auction. See tax sale surplus funds for each state’s claim rules.

Common Questions

Which states pay the highest interest? Iowa’s fixed 2% a month is the highest rate on paper. Florida, New Jersey and DC cap at 18% a year, but bidding usually pushes the rate far lower. Tax lien states compares them.

Can the owner get the property back? In lien states, yes, until the deed or foreclosure judgment. In redeemable-deed states such as Texas, for 180 days to 2 years after the deed is recorded (Tex. Tax Code § 34.21). The redemption period covers each state.

Do I need cash? Almost always. Counties want payment in full within days, and many require a deposit before you can bid. How to buy tax lien properties lists typical requirements.

What can go wrong? You can buy a lien on a strip of unusable land, lose the rate in bidding, or wait years for a redemption. Risks of tax lien investing walks through them.