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If a property owner owes the local government for real estate property taxes and either refuses to pay or is unable to pay the debt, the county government can put a lien on the real estate they own. Whether it is a house or a tract of land, the lien can be applied in order to secure payment for the debt. The government gets its money in one of two ways: The homeowner may choose to pay the debt and make arrangements for doing so or the government may make tax liens available for sale to investors. Although each state has various rules and restrictions on tax liens for sale, the most commonly accepted method for sale is via a public auction where prospective investors can bid on the lien. Auctions have traditionally been conducted in person. However, with today's technology Internet auctions are gaining popularity in some counties. This is advantageous for the government because it exposes the tax liens for sale to a wider variety of people located in places where it would be inconvenient for them to travel. When there are tax liens for sale people bid on them and a winning bid is chosen. This can be done a number of ways including awarding the sale to the investor who will accept the lowest interest rate, the investor who offers the highest bid price in excess of the lien, by random selection or on a first-come first- served basis. Depending on the state, any one of these means can be used to determine a winning bid. After the investor is awarded the bid, a redemption period starts where the person who incurred the debt has a specified amount of time to pay off the lien. The time period varies by state. If the lien is not paid during the redemption period, the lien holder can take the tax liens for sale and start foreclosure proceedings. The investor can sell the property or bid on it with the first right of refusal. Buying tax liens for sale can be a lucrative investment but there are risks involved. If the lien holder does not initiate foreclosure within a particular time period after the redemption period has expired, all rights to the lien are lost and the initial investment forfeited.
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