The Tax Lien Process

Each state sets it own rules for tax lien auctions sets. In Florida, the county can sell a house only a few months after the debt goes delinquent. In Indiana, the period is more than a year. When the time comes, the county schedules the auction and publicizes it -- by taking out a legal ad in the local paper, for example. Often you must register with the county tax office to bid. In most states, the bidder who offers the most money wins the auction.

Getting Paid

In three-quarters of tax-lien sales, the top bidder doesn't end up getting title. The law gives the delinquent owner time -- sometimes years -- to regain the house by paying you back your bid amount, plus interest. Most tax-lien investors make their money off the interest. Connecticut, for instance, allows the investor to charge 18 percent. In other states, you win the auction by bidding down the interest. The bidder willing to offer the lowest interest rate gets the tax lien. This cuts into your potential profits.

Look Before Leaping

The worst-case scenario is that your bid wins, the owner doesn't redeem it and the house itself is a run-down ruin. Before you bid on anything, you or someone you trust needs to look over the property. You can't get inside or inspect it if it's still occupied, but a look from the street is better than nothing. This is easiest if you start with local sales from your county or neighboring ones, so the property is within driving distance.

Preparing Financially

If you bid, be prepared to pay promptly. In Gwinnett County, Georgia, the highest bidder won't get the property if he can't back his bid in full. Instead, it goes to the highest bidder with cash or a certified check in hand. Once you pay, your money is tied up in the property until you either get title or the owner pays you back. If the owner defaults on taxes again, there may be another tax-lien auction; you need to win that one to retain your right to the property. It's easy to get in over your head financially if you're not careful.