What Is a Lien Sale?

A Lien Sale Explained in Less Than 4 Minutes

A couple sit outside a home holding a document that says “final notice.”
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DEFINITION
A lien sale occurs when someone is delinquent on their property taxes, water bill, or other property bills, and their unpaid debt is sold.

A lien sale occurs when someone is delinquent on their property taxes, water bill, or other property bills, and their unpaid debt is sold.

At that point, homeowners would have to pay the person or entity that purchased their tax lien sale certificate the debt owed along with interest. If they do not, they may face foreclosure after a certain period of time. 

Learn more about how lien sales work and what they mean for homeowners and investors. 

Definition and Examples of a Lien Sale

A lien sale is when a local government tries to recover property taxes or other payments from a delinquent homeowner by selling off the debt to another buyer. That person or agency may then collect payment with interest, and if not paid, they take over the property.

Lien sales can also take place for other personal property such as automobiles.

  • Alternate definition: A lien sale is when a creditor sells their legal claim to a piece of property to a new lienholder.

An example of a lien sale is how the New York City Department of Finance handles property tax delinquency. Each year, after sending four warning notices, if homeowners do not respond, the Department sells its tax liens to authorized buyers.

In some municipalities, liens may be sold off at public auctions in which the highest bid for cash or lowest bid for an interest rate can purchase the lien. 

How a Lien Sale Works 

According to the National Tax Lien Association, about 2,500 jurisdictions in the U.S. sell public tax debt. These sales must be listed publicly and advertised prior to the actual sale date, and usually includes the property owner, description, and the amount of the tax debt.

Lien buyers can be collection agencies, or in the case of an auction, it could be whoever the highest bidder is.

Once an investor or company purchases a lien, they are allowed to charge interest (up to a maximum set by the state) on the debt until it is paid up. If the debt isn’t paid, the lien holder can foreclose on the property.

Property owners can avoid a lien sale by paying their outstanding debt. Some people may also qualify for a property tax exemption such as veterans, seniors or those with disabilities, while others may be eligible for a hardship exception (because of COVID-19, for example). 

Lien sales allow state and local governments to recoup a portion of unpaid taxes while giving investors an opportunity to collect payments with interest. For homeowners, it’s best to avoid letting unpaid debt get to the lien sale stage.

Is a Lien Sale Worth It?

For someone interested in getting into lien sales as an investor, it's important to understand the benefits and risks. On the one hand, tax lien certificates can provide a way to diversify your portfolio to include real estate without, for example, managing a rental property.

However, there are often legal fees involved, there is no guarantee that the property owner will pay, and if you do end up foreclosing on the property, there are no guarantees about the condition of the property, which could lead to more expenses once you take ownership.

If you’re considering buying a lien as an investment be sure to do some research and consider speaking with a financial or legal adviser to guide you.

What It Means for Homeowners 

Homeowners should strive to avoid a lien sale. Anyone who is behind on their taxes, water bills, or other property costs, can contact the appropriate department to discuss options. If you are notified that your lien is going to be up for sale and you don’t take action, the buyer will be allowed to charge interest. That will make your debt even more difficult to repay. 

If you’re struggling to pay your taxes, contact the government you owe money to and ask about how to avoid a lien sale. Some governments may allow you to set up a payment plan or make a partial payment. 

If a lien sale occurs, you will have to comply with a new payment schedule and interest charges from the buyer. If you fail to make the payments, it's possible a judgment could be issued, which could lead to foreclosure.

Key Takeaways

  • A lien sale is when a local government sells delinquent debt, such as property tax debt, to a buyer, who then claims the lien.
  • Lien sales can occur through public auctions.
  • Lien sales can attract investors, but they do carry risks and costs.
  • Homeowners should strive to avoid a lien sale and work toward paying down their bills.

Article Sources

  1. National Tax Lien Association. “FAQs.”

  2. New York City. “NYC Property Tax Lien Sale.”

  3. Douglas County, Colorado. “Tax Lien Sale Information.”

  4. Commonwealth of Massachusetts. "Frequently Asked Questions About Tax Lien Foreclosure Cases In The Land Court, What Is A Tax Lien Foreclosure Case?"