Posted on Friday, November 19th, 2021

tax deedProperty and real estate taxes are an inevitable expense that is incurred by property owners all over the country. Local communities who fund various municipal programs including schools, law enforcement, and park departments often rely on these taxes. Whether you are a user of these services or not, you are likely going to be assessed property taxes, which may increase each year.

Unfortunately, there are situations in which a property owner is not able to make a tax payment. In these situations, the applicable county or town will auction off any outstanding tax bills to investors through tax lien certificates. Investors can then earn a return on their investment by collecting accrued interest income. In some cases, they can even take title to the underlying property, which is why it is important to understand how tax lien certificates work.

What is a Tax Lien?

If you are a property owner and have fallen behind on your property tax payments, your local municipality will take the necessary steps to collect the past due balance owed on the real estate taxes. One of the first things that it will do is file a tax lien against your real property. This tax lien would be a first position lien for unpaid real estate taxes, which would be enforceable against the real property, and which would, essentially, get priority preference over any other lien on your property, including your mortgage. If you go to sell your home in the future, you will not be able to do so without, first, paying off the balance owed for any unpaid real property taxes that are due and owing at the time of closing.

What is a Tax Lien Certificate?

When real estate taxes for certain real property remain unpaid after a designated due date, the governing municipality will issue a tax lien certificate against the applicable property. Generally, when issuing tax lien certificates, the local tax collector is required to hold a tax lien certificate sale on or before the 1st of June of each year. When tax lien certificates are held for sale, investors may opt to purchase these tax lien certificates by participating in an auction. The auction is structured so that any participants would bid downward on the interest rate, which is initially set at 18%. The investor who offers the lowest bid will then be awarded the tax lien certificate. Once a tax lien certificate is awarded, the winning investor will step in and pay the past due real estate taxes owed, as well as any interest, costs or fees owed in connection with such past due real estate taxes, then the tax lien certificate will be issued and will continue to accrue at the applicable interest rate until paid. If a property owner opts to redeem the tax lien certificate, the property owner will be required to pay for all outstanding taxes, penalties, fees, accrued interest and advertising costs to the applicable tax collector’s office. Once payment is received and applied, the tax lien certificate holder will be reimbursed for the cost paid for the certificate, plus any accrued interest, then the applicable county will cancel the tax lien certificate, which will cancel the tax lien on the property.  For investors, you have the ability to purchase these certificates from the government at auction or through another buying process. A local Orlando real estate attorney can help ensure that you go through the proper process of purchasing the certificate.

What is a Tax Deed?

If the tax debt remains unpaid for two years after the tax lien certificate is issued, the tax lien certificate holder may file for a tax deed by completing and submitting a tax deed application with the governing county’s tax collector office. The completion and submission of the tax deed application will begin the process of having the subject property sold at a public auction. At the time of filing the tax deed application, the tax lien certificate holder will be required to pay for an application fee and a title search, as well as any and all outstanding real property taxes on the subject property. Given that a tax lien certificate is valid for a period of seven years from the date it is issued, any tax lien certificate holder interested in purchasing the subject property by tax deed would need to ensure that the tax deed is applied for before the expiration of the seven-year period. Once a tax deed application has been filed, in order to stop the tax deed process, the property owner must pay for the past due real estate taxes owed, as well as any fees and accrued interest owed in connection with the past due real estate taxes. If not paid, the property will eventually go to public auction. Once sold at a public auction, the property owner will have until the deed is issued to redeem the tax lien certificate; however, once a deed has been issued, any rights for the property owner to redeem the tax lien certificate and to get back the subject property have been lost. Orlando real estate lawyers can help you understand this process to ensure you are making wise decisions when acquiring a tax deed.

What are the Differences Between a Tax Lien Certificate and a Tax Deed and are Both Available in Florida?

Both tax lien certificates and tax deeds are ways municipalities collect on delinquent property taxes. The main difference between the two is that with a tax lien certificate an investor is purchasing the right to collect the taxes and place a lien on a property, while with a tax deed, an investor is actually purchasing the property, by virtue of a tax deed for unpaid real property taxes, at auction.

Both tax lien certificates and tax deeds are issued in Florida. Generally, a property will go through the tax lien certificate process before becoming eligible for auction by virtue of the tax deed application process. If someone falls behind on payments, a tax lien certificate will be sold by the governing municipality to an investor. After the requisite period of time has expired, the investor can then submit a tax deed application and then have the subject property sold at a public auction. Orlando real estate attorneys can provide guidance throughout this process.

If investing in tax lien certificates or tax deeds in the area, it would be a good idea to work with real estate attorneys in Orlando. When working with real estate lawyers in Orlando, you will get to learn more about the process and ensure you are following proper protocol to protect your investment. When looking for an Orlando real estate lawyer, you should work with Nishad Khan P.L. to receive top legal services and guidance.