What Is a Tax Deed?

The term “tax deed” refers to a legal document granting ownership of a property to a government body when the owner fails to pay any associated property taxes. A tax deed gives the government agency the authority to sell the property to collect the delinquent taxes. Once sold, the property is then transferred to the purchaser. These transactions are called “tax deed sales” and are usually held at auctions.

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What Is a Tax Deed Sale?

In a tax deed sale, the property with the associated delinquent property taxes is sold. The sale takes place through an auction with a minimum bid of the amount of back taxes owed plus interest, as well as costs associated with selling the property. The highest bidder wins the property.

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The tax deed legally transfers ownership to the purchaser on one condition: The new owner must often pay the entire amount owed within 48 to 72 hours, or the sale is canceled. Any amount bid by the winning bidder in excess of the minimum bid may or may not be remitted to the delinquent owner. This depends on the jurisdiction.  The original owner may forfeit this excess amount if they do not claim it within a specified period of time. In California, for example, claims must be filed within one year, while the deadline in Texas is two years.  In Georgia, funds can be claimed up to five years after a tax deed sale, at which point a court order is required to retrieve excess funds.

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Unlike mortgage auctions, the opening bid at a tax auction is usually the amount of unpaid taxes due on the property, (plus penalties, interest, and any associated costs for putting on the auction).  If the property sells for more than the opening bid, then overages will be generated. 

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