Tax lien reversal: what is a refundable deed and how is it different from a tax lien?
Most investors know the difference between a tax lien and a tax deed. They understand that when they buy a lien they are not buying the property, but paying the taxes on a delinquent property and placing a lien on the property so that if the property owner does not pay the amount of the lien plus interest and penalties, in a set period of time (the redemption period) can foreclose on the property. And they understand that when they go to the sale of a tax deed and buy a tax deed, they are actually buying the property. But many would be tax investors who do not understand what a redeemable deed is and how it differs from a bond.
What is a redeemable tax deed?
A redeemable tax deed is something between a bond and a deed. When you go to a redeemable tax deed sale, you are actually buying the property deed. If you are the winning bidder, you will receive a deed of ownership. However, that deed is taxed for a period of time known as the redemption period (not to be confused with the redemption period for links). The owner can redeem the property by paying the amount that was offered for the deed in the tax sale plus a hefty penalty. If the deed is not redeemed during the amortization period, the previous owner will not be able to redeem the property and the owner of the tax deed is the registered owner and legal owner of the property.
Which is better, redeemable deeds or fiscal bonds?
A redeemable tax deed is very similar to tax liens, but there are some important differences that I think make redeemable deeds a better deal for the investor. I will point out that each redeemable state treats these facts differently. In some states, like Texas for example, when you buy a redeemable deed, you are considered the legal owner of the property and you can evict anyone who may be on the property once you register the deed. The previous owner has redemption rights, but is no longer considered the rightful owner of the property. But in Georgia, which is another popular redeemable deed state, when you buy a deed you are not the legal owner of the property until the redemption period is over and you foreclose on the property. In Georgia, you must execute the refundable deed as you would a bond to take possession of the property.
But in both states and in most other states with redeemable deeds, to redeem the deed, the owner must pay the investor what he offered in the tax sale plus a hefty penalty, not interest. What this means is that if you buy a redeemable tax deed and it is redeemed a few days after registering the deed, you still receive the full amount of the penalty. You get the same interest on your money if it is redeemed in 2 weeks or 2 years. A penalty is not annualized like an interest payment would.
What are the disadvantages of investing in refundable deeds compared to tax ties?
The problem with investing in redeemable deeds is that there are only 5 states that sell them and none of these states have online tax sales, so you have to show up for auction in order to participate in the sale. The 5 states that sell refundable tax deeds are Connecticut, Georgia, Hawaii, Tennessee, and Texas. For more information on Tax Lien Investing and Tax Writing, visit http://www.TaxLienInvestingBasics.com and get your free special report on the 7 Steps to Building Your Profitable Tax Lien Portfolio.