Methods of Redemption: What Are They?

by McKenzy Goodbar, Senior Tax Lien Adviser

Many people are attracted to tax lien investing because of the possibility of acquiring the property at a lower cost. But it’s important to understand that as a tax lien investor, there is always a possibility that the lien will be redeemed. Make no mistake though, being redeemed shouldn’t be seen as a negative as you will receive your investment plus any interest accrued during your time of having that certificate.

There are FOUR main methods of redemption that can occur on a tax lien:

  1. Property owner pays their taxes
    You can invest into a delinquent tax lien and the property owner can pay you off without being prompted to do so. The property owner will usually have the first right to pay the delinquencies off up until the property goes to auction, but they can also pay it off without anyone forcing them to in order to bring their delinquencies current.
  2. Another lien holder files a Tax Deed Application
    If another investor initiates the Tax Deed Application (TDA) then you will get redeemed on your certificate because your lien will be included in the other investors Roll Up cost. If this happens, you won’t be given the opportunity to foreclose. Instead, you’ll receive a redemption check in the mail with the original amount that you invested plus any interest that you’ve accrued over time.
  3. You file a Tax Deed Application and the property owner pays their taxes before auction
    The property owner can redeem all the way up until the auction date. Typically the property owner will be given a certain timeline in which they can pay you back before the county will schedule the property to go to auction, but in most cases the property owner can redeem you at any point before the property goes to the Tax Deed Auction. If they do decided to pay their delinquencies, you’ll receive a redemption check in the mail with the total amount that you’ve invested in the roll-up cost, any TDA or auction fees that you may have paid to the county, and the interest that you’ve accrued off of the roll-up amount as well.
  4. Redemption occurs at the Tax Deed Auction
    Once it’s determined that the property owner is not going to pay off their delinquencies, the county will schedule a date for the property to go to the tax deed auction. They hold these auctions on a monthly basis so that they can ensure that properties are scheduled for auction in a timely manner. The minimum bid at the auction will start at what your total investment is which will include your roll-up cost, the TDA and auction fees that you paid as well as the interest that you’ve accrued up until this point. The reason that the minimum bid starts at your total investment is to ensure that even if the property only gets bid to the minimum amount, the tax lien investor is still fully redeemed on their investment. If the property gets bid on at the auction, you’ll receive a redemption check in the mail redeeming you for your investment on the property.

Even if property acquisition is your goal, being redeemed on a tax lien purchase is never a bad thing. What’s wrong with making interest on your money? Nothing! It’s great to get a property at a low cost, but if redemption occurs on a tax lien certificate, that is great too!