# Tax Deed: Definition, How to Clear It, and Tax Deed Sales

![A shelf full of numbered deeds](https://www.investopedia.com/thmb/LPFHuWJmrNVM64bpteXiT4fIXXI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-115941135-6a6652d5cf41484db97a92e863ea7988.jpg)

*— wsmahar / Getty Images*

## What Is a Tax Deed?

A tax deed is a legal document that grants ownership of a property to a government body when the owner fails to pay any associated [property taxes](https://www.investopedia.com/terms/p/propertytax.asp).

A tax deed gives the government agency the authority to sell the property to collect the [delinquent taxes](https://www.investopedia.com/terms/b/back-taxes.asp). Once sold, the property is then transferred to the purchaser. These transactions are called tax deed sales and are usually held at auctions.

### Key Takeaways

*   A tax deed grants ownership of a property to a government body when the owner fails to pay the associated property taxes.
*   Tax deeds are sold to the highest bidder at an auction for a minimum bid of the outstanding taxes plus interest and the costs associated with the sale.
*   At the close of the auction, the county receives the total delinquent tax assessment, and the former owner receives the net proceeds after taxes and penalties.
*   Property owners may file a claim to receive any amount paid to the municipality in excess of the property taxes plus interest.

## Understanding a Tax Deed

A property tax is any tax levied on a piece of [real property](https://www.investopedia.com/terms/r/real-property.asp). Taxes are assessed by the municipal government where the property is located and paid by the owners of the real estate.

The taxes collected are used to fund various municipal programs, such as water and sewer improvements, law enforcement and fire service, road and highway construction, and other services. Property tax rates vary by jurisdiction.

When [property taxes are left unpaid](https://www.investopedia.com/terms/t/tax-sale.asp), the taxing authority may sell the property’s deed or title—and therefore, the property—to recover the outstanding taxes.

The taxing authority—usually a county government—must go through a series of legal steps in order to acquire a tax deed.

These steps vary with local and municipal laws, but include notifying the property owner, applying for the tax deed, posting a notice at the property, and posting a public notice of sale.

## Tax Deed Sales

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.

The tax deed legally transfers ownership to the purchaser on one condition: The new owner must pay the entire amount owed, often 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.

> **Important**
>
> Some states have a redemption period during which the original owner may pay back their tax debt and reacquire their former property.

## Special Considerations

While some states sell the title to the winning bidder the day of the tax deed sale auction, others will allow a redemption period during which the original owner has an opportunity to repay their tax debt and get the property back.

If the owner chooses to pay their debt obligations within this period, they must pay the winning bidder the amount bid at the auction plus interest, a total which can be quite high.

However, if the redemption period passes, and the owner still does not reclaim their property deed, the highest bidder has a chance to [foreclose](https://www.investopedia.com/financial-edge/0510/the-6-phases-of-a-foreclosure.aspx) on the property.

The redemption period in Idaho, for example, is 14 months, while owners in Iowa have 21 months to redeem their property.

## Tax Deeds vs. Tax Liens

[Tax liens](https://www.investopedia.com/terms/t/taxlien.asp) are similar to tax deeds, with some subtle differences. While tax deeds transfer ownership of the property itself to a new party, tax liens are a legal claim against the property when the taxes aren’t paid.

The lien process begins when a government body places a lien against a property if its owner defaults on their property taxes. A lien prevents owners from doing anything with the property, including [refinancing](https://www.investopedia.com/terms/r/refinance.asp) or selling it. The lien, rather than the property itself, is sold off at auction.

Interested parties can invest in these tax liens by bidding for them. The [return](https://www.investopedia.com/terms/r/return.asp) is based on a maximum rate of interest allowed by the municipality.

Liens can cost anywhere from a few hundred to a few thousand dollars and pay simple interest that accrues on a monthly basis.

When a property owner defaults on their property taxes, the municipality sends a notice advising them of the upcoming tax lien. If the owner doesn’t bring the tax payments up to date, the tax lien is then put up for auction.

The lien is transferred to the highest bidder, who pays the outstanding tax amount to the municipality. In order to remove the lien, the property owner must pay the new lien owner the outstanding amount plus interest.

> **Fast Fact**
>
> Foreclosure auctions are typically conducted once a year. For example, the sale date for foreclosures begun in 2024 in King County (Seattle, WA) is September 10, 2025.

## Example of a Tax Deed Sale

Assume that the value of a property in a tax deed sale is assessed at $100,000 and has $5,700 in back taxes owed. The highest bid on the property is $49,000.

The county will take $5,700 from the bid amount to cover the property taxes due, and the remainder will be paid to the original owner. So, $5,700 is remitted to the county and $43,300 ($49,000 - $5,700) is remitted to the original owner.

The bidder gets the [title](https://www.investopedia.com/terms/t/title.asp) of the home and an equity profit of $100,000 - $49,000 = $51,000.

## What Is the Difference Between a Tax Deed and a Tax Lien?

A tax deed is the full transmittal of the title of a property due to property tax payment delinquency. A tax lien is a legal designation that one party has rights to collect proceeds or value from a property. All liens are subsequent rights to receive value from an asset.

## How Do I Clear a Tax Deed?

A tax deed or tax deed sale arises due to unpaid property taxes. If all tax obligations are cleared and associated penalties, interest, and fees are paid, a tax deed will often clear prior to auction and remain with the original property owner.

## What Happens If I Do Not Pay Property Taxes?

Property taxes are sanctioned by municipal government bodies and are legal obligations for owning real estate. If you do not pay your property taxes, the government has the right to seize your property, claim rights over proceeds to cover the owed obligations and dispose of the property to a new owner. The rules around this tax deed process vary between government entities.

## The Bottom Line

A tax deed is a legal document pertaining to real property ownership. It conveys that ownership to a government entity when the property owner fails to pay property taxes that are due.

The government entity may sell the property deed via public auction to obtain the taxes owed, plus amounts for any interest and costs associated with the process.

The auction winner then pays that total and takes legal possession of the property. The original owner may receive net proceeds above the amount for taxes, interest, and costs.

> **Article Sources**
>
> 1.  National Association of Realtors. "[Property Taxes](https://www.nar.realtor/property-taxes)."
>     
> 2.  California State Controller. "[County Tax Collectors’ Reference Manual - Chapter 8000: Sale of Tax-Defaulted Property](https://web.archive.org/web/20230721053145/https://www.sco.ca.gov/Files-ARD-Tax-Info/Tax-Collector-Ref-Man/ctcrm_chapter8.pdf)," Page 52.
>     
> 3.  Texas Constitution and Statutes. "[Title 1. Property Tax Code. Subtitle E. Collections and Delinquency. Chapter 34. Tax Sales and Redemption. Subchapter A. Tax Sales](https://statutes.capitol.texas.gov/Docs/TX/htm/TX.34.htm)."
>     
> 4.  Justia. "[O.C.G.A. 48-4-5 (2010) 48-4-5. Payment of excess](https://law.justia.com/codes/georgia/2010/title-48/chapter-4/article-1/48-4-5/)."
>     
> 5.  Iowa Legislature. "[Tax Redemption, §447.9](https://www.legis.iowa.gov/docs/code/447.9.pdf)," Page 1.
>     
> 6.  Idaho Legislature. "[Idaho Code Sec 63-1007. Redemption - Expiration of right](https://legislature.idaho.gov/statutesrules/idstat/title63/t63ch10/sect63-1007/)."
>     
> 7.  King County. "[Foreclosure Auctions and Information.](https://kingcounty.gov/en/legacy/depts/finance-business-operations/treasury/foreclosure)"