What Is a Tax Lien Certificate?

What Does a Tax Lien Certificate Give You?

A tax lien certificate gives you a right to be repaid with interest when the owner redeems, and a path to the property if they don’t. The certificate is evidence of your claim. It names the parcel, the amount you paid and the date of sale. It does not give you the right to live in, rent or enter the property, and the owner keeps title.

The owner redeems through the county office that sold the certificate, not by paying you directly. In Iowa, later-year taxes you pay on the same parcel are added to your claim and earn the same 2% a month from the month you pay them (Iowa Code § 447.1). Some states call the document something else, such as a certificate of purchase or certificate of delinquency, but the function is the same.

How Long Does a Tax Lien Certificate Last?

Every state sets a waiting period before you can act, and many set a deadline after which the certificate is worthless. In Iowa you can serve the notice of expiration of the right of redemption 1 year and 9 months after the sale (9 months for certain public-bidder sales), and the owner then has 90 days to redeem (Iowa Code § 447.9). In Florida a holder can apply for a tax deed once 2 years have passed since April 1 of the year the certificate was issued (Fla. Stat. § 197.502). Deadlines cut the other way too. An Arizona holder who doesn’t sue within 10 years loses the right to foreclose (A.R.S. § 42-18201), and an unredeemed Colorado lien expires on the 15th anniversary of the sale (El Paso County Treasurer). See tax lien states for the periods elsewhere.

What Does an Iowa Certificate Earn?

You buy an Iowa certificate for $1,800 at the June sale. Because the rate is fixed, the competition was over the share of the parcel, so your certificate covers a smaller undivided share of the land than 100%. That share matters only if the owner never redeems.

1. The owner redeems 14 months and 3 days after the sale.
2. The extra 3 days count as a full month: 15 months (Iowa Code § 447.1).
3. Interest: 15 × 2% = 30%. 1, 800 × 30540**.
4. You receive $1,800 + 540 =  * *2,340**, plus any later taxes you paid with their own interest.

The same certificate redeemed after 2 months earns $1,800 × 4% = $72. The rate is high, but the dollars depend on how long the owner takes, so a quick redemption pays you little even at 2% a month.

What Counties Actually Do

Counties handle unsold and small certificates differently, and some let you buy the ones nobody bid on straight from the county. Iowa counties can assign certificates they hold to individuals (Iowa Code § 446.16). In Florida, a certificate for less than $250 in tax on a homestead is not auctioned. It is issued to the county at the maximum rate (Fla. Stat. § 197.432(4)). Florida county-held certificates can be bought any time after issue and before a deed application, at 1.5% a month to the date of purchase plus a $6.25 fee per certificate (Fla. Stat. § 197.4725). Read the local rules on Iowa tax sales and Florida tax sales.