What Is a Tax Sale or Tax Auction?

If a homeowner does not pay his or her taxes for an extended period of time and does not respond to the notices from the local municipality concerning the tax lien placed on the property, the municipality has the right to sell the delinquent taxes at a tax lien sale. This typically takes place in an auction format, usually at a government office building, and is published beforehand in the local newspapers. Investors, both individual and institutional, take part in the sale, vying against each other in a competitive bid situation, bidding on the right to buy the delinquent taxes from the municipality. They will then usually allow several months to go by (accruing more and more interest at the locally legislated rate) and then seek to collect the principal plus interest from the homeowner. If they are successful they will get back their money, plus interest. If they are not successful in collecting the amount of back taxes and interest from the homeowner, they will often move forward against the homeowner in tax foreclosure proceedings.