Lien State

• Not all states are lien states; some are deed states. In lien states, the tax owed is paid by an investor, who is eventually repaid with interest. Typically, the interest is high, exceeding 16 percent in some states. If the property owner never repays the investor, the investor can take steps to acquire ownership of the property. Most liens against the property, such as mortgages, are discharged, and the investor can possibly gain ownership for the cost of the initial tax and some fees.
  
  

Deed State

• If a state is not a lien state, it is a deed state. In a deed state, unpaid taxes are not paid by an investor. Instead, the investor purchases the deed to the property to repay the unpaid taxes. In a lien state, the goal is not to obtain ownership of the property but to earn high, guaranteed interest; in a deed state, the ultimate goal is to purchase the property for a low price. In both cases, it is possible for the investor to gain eventual ownership of the land.
  
  

Value

• While ultimate ownership of the property in a lien state is not the goal, it is still necessary for an investor to verify that the land is worth the amount being invested, in case the property owner does not repay the debt. For example, unbuildable land in a remote area may not be worth the price of the unpaid taxes.
  
  

Undischarged Liens

• Most liens against the property are discharged when the delinquent tax is paid, but some liens can remain with the property and become the new owner's responsibility. Examples of this are federal and state tax liens. Commercial properties are more vulnerable to these types of liens. Another consideration is environmental issues, which could become the new owner's headache. For example, if an investor pays tax liens on a piece of property that was the site of a gas station and then gains ownership of the land because the owner failed to repay the taxes, the investor may discover the land has costly environmental issues that must be addressed.
  
  

Interest Rates

• Although the interest rate is typically high for investors, it is also negotiable. Tax liens are often put up for auction, where investors bid against each other for a specific lien. If the winning bid is lower than the regular rate, the difference goes to the state. For example, if the state pays 16 percent and the winning investor has agreed to take 12 percent interest, the difference of 4 percent is still collected from the property owner but goes to the state instead of the investor. Information on tax liens and the procedures followed in each state can often be found by visiting the county website where the delinquent tax property is located.