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Tax Sales

The Difference between Tax Deed Sale and Tax Lien Sale

If a homeowner fails to pay property taxes to a tax collection office in a locality, his property may be subjected to a tax sale.  This is not considered as a penalty imposed on the delinquent taxpayer but rather a means in which government can continue to collect taxes systematically.  There are two kinds of tax sales that the agency mandated by the government can carry out.  These are tax deed sale and tax lien sale.  Both can be achieved by the holding of a public auction.

In a tax deed sale, the tax collection agency may enforce the sale of the property of the delinquent homeowner for the purpose of having the taxes paid out of the income from the sales.  The property is subjected to a public auction in which the lowest bid should not be less than the amount taxes owed including interest and the expenses incurred in selling it.  Provinces that implement tax deed sales are usually compelled not to hold an auction for a grace period of several years.  But when such period expires and the sale is completed through an auction, the homeowner can no longer have his or her property back.

Nevertheless, there are certain localities that provide six and twelve months respectively as redemption periods. If the homeowner is ultimately able to comply with the requirements, including paying for the taxes and penalties, he may be able to recover the property.

A tax lien sale, on the other hand, does not require the property to be disposed at an auction.  Instead, the right to collect the taxes as well as the interest is sold to interested entities.  Therefore, it is no longer the tax collection agency that would run after the tax-delinquent homeowner but the private entity which was able to buy the tax lien.  This tax lien buyer can actually extract more profits from this arrangement because it can impose interests to the property owner.  Although, this entity has to pay the tax collection agency with the amount usually equal to the property owner’s unpaid taxes, it can actually recover early and increase its profit margin through interest rates.  The lien’s purchaser loses nothing if the homeowner fails to repay because it can just decide to foreclose the property.  In this regard, investing in a tax lien sale is certainly a win-win situation.

One major difference between a tax deed sale and a tax lien sale is that the former has lesser instances of selling.  This is primarily because it requires a higher amount of money than the former.  Buying a property certainly entails bigger expenses that buying liens.  However, for people who wish to invest in real estate, a tax deed sale is indeed a worthy approach.  They can simply buy the property for less, since most of the price is merely composed of the unpaid taxes.  But they can resell it at a much higher price later.  Nevertheless, investors who do not wish to be troubled with disposing real properties will certainly opt to buy tax liens instead.


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