Many investors overlook investing in the niche of property tax lien certificates. However, some find it as a worthwhile alternative investment. Another close alternative to a Pennsylvania tax lien certificates sale is a tax deed sale. This post elaborates more on these two investment projects and advises you on which to engage in while you are in Pennsylvania, PA. Also, it includes the state rules that Pennsylvania, PA follows.

What are tax lien certificates?

A tax lien is a legal claim against a person who doesn’t pay taxes. For example, if a homeowner does not pay taxes, the authority of the place can place a lien on the property. The lien is a claim on the property for the money owed to the government. The homeowner cannot sell the property until all the tax is cleared.

The municipality creates a tax lien certificate reflecting the debts, penalties, and dues owed on the property. The city then auctions off these certificates to the highest bidder. The highest bidder becomes the new lien owner and collects the debt owed and any accrued property interest. If the property forecloses, the investor attains title over the property and can sell it.

The tax lien certificates sales offer interests every month. It is a cheap investment option because the certificates may cost only a few thousand dollars. However, the cost differs with the size of the property. Large properties may have pretty expensive lien certificates.

What are tax deed sales?

A tax deed sale occurs when a county holds a public auction on real estate with delinquent property taxes. For example, if a property owner does not pay the delinquent taxes or fails to appear in tax court to challenge the amount of taxes owed by a specific date, the county acquires the authority to sell off their property.

If you purchase the property at the public auction, you must pay back all delinquent taxes, plus interest, and then own the property. The property you buy at a tax deed sales auction costs less than the market price of a similar property.

Once authorities sell the property over the minimum bid, they may remit the excess to the original owner. The power to remit depends on the state’s rules. If a state allows forwarding the excess money to the original owner, the owner must claim it within a specific period. If the owner does not claim, then the authorities consider the amount forfeited by the owner.

Does Pennsylvania have tax lien certificate sales?

Each state’s rules to compensate itself for unpaid taxes are different. In Pennsylvania, they don’t engage in tax lien certificate sales. The state that has 67 counties considers itself as a tax deed state. Therefore, in Pennsylvania, you can only acquire the property and not the lien to the property.

What is the interest rate in Pennsylvania?

Since Pennsylvania is a tax deed state and not a tax lien state, the concept of interest rates does not apply to the state. If you engage in a tax deed sale, you can profit by selling the property at a higher price and not by earning interests.

Another difference is that tax liens only grant one a legal claim, while a tax deed gives the investor ownership of the property. Tax liens certificates are a cheaper investment than tax deeds because, for a tax lien certificate, you don’t need to buy the property.

Redemption period

Some states provide for what is known as a ‘redemption period.’ A redemption period is a specific time set by the government in which the original property owner can repay taxes and get their property back from the investor. The original owner must fulfill the debt owed to the government and compensate the investor with the amount bid and some interests.

However, if the redemption period passes, the new owner can foreclose on the property. The redemption maybe about a year or more. In Pennsylvania, most counties don’t offer a right of redemption to the original owners. However, some do; for example, in the City of Philadelphia, the property owner may redeem the property if he occupied the property 90 days before the sale.

Are there any tax lien auctions in Pennsylvania?

Tax lien auctions are where investors can bind for tax lien certificates. Since there is no Pennsylvania tax certificates sale, you cannot find any tax lien auction in Pennsylvania. The only thing you can get in the county is tax deed sales.

Pennsylvania tax deed sales

There is a first Pennsylvania tax deed sale known as the Upset sale, and it usually occurs in September. Also, there are judicial sales that are held in spring. Therefore, be alert at these times. You may need to pre-register to have a seat on the auction sale. To pre-register, you may need a valid license, photo I.D., or any other form of identification.

What is the Bidding Process in tax deed sales?

The bidding process is similar to any other typical auction. The auctioneers determine the first bid price regarding the delinquent taxes, municipal liens, and cost of the property. The highest bidder strikes down the auction. When you are the highest bidder in these auctions, you may have a minimum amount (48-72 hours) of paying the costs of the sale.

If an auction sale doesn’t occur or it fails, then the municipal can sell the property through a private sale three months later. If a private sale does not happen, the court evaluates the lien and decides whether it will remove it.

Bottom Line

If you are in Pennsylvania, it would be best to try investing in tax deed sales. There are many available properties in certain counties, and it would help if you looked for them and bought them. Unfortunately, there are no tax certificate sales in Pennsylvania, which is another lucrative business venture. If you want to invest in a good business niche that is not overly competitive, consider engaging in tax lien certificate sales or tax deed sales.