How Redemption Periods Work: Tax Lien Investing
Written By Tony Martinez
Main Points
When getting started with tax lien certificate investing, one of the most important concepts to understand is the redemption period. This grace period directly affects your investment timeline, potential return, and whether or not you may eventually acquire the property.
In this article, we’ll break down what the redemption period is, how it fits into the overall tax lien process, explore a real-world example, and explain how it connects to tax deed investing and the opportunity to acquire physical property.
Whether you're looking to earn consistent returns or eventually take ownership of a property, knowing the ins and outs of the redemption period is key to successful tax lien investing.
The Timeline For Tax Lien Certificates
Redemption periods typically range from 6 months to 3 years, depending on state law and the specific county where the property is located. This period generally begins on the date of the tax lien auction, not when you purchase the certificate. That means if you buy a lien several months after the auction in an over-the-counter (OTC) sale, part of the redemption period has already elapsed, shortening the time you must wait before you can potentially foreclose.
During the redemption period, the property owner can redeem the lien at any time by paying the full amount owed, including any applicable penalties and interest that you, as the investor, are entitled to. The interest rate is set by state law and can range anywhere from 8% to 24% annually, depending on the location.
The redemption period not only protects the property owner but also determines when you, as the investor, are eligible to take the next step. Once the redemption period expires and the lien remains unpaid, you may initiate the foreclosure process and, ultimately, take title to the property. This is where understanding timelines, legal procedures, and your lien’s status becomes essential.
It’s important to note, however, that most liens are redeemed before the period expires. In fact, only a small percentage of tax lien certificates ever progress to foreclosure. You typically earn interest rather than acquire properties.
If your goal is to acquire physical real estate rather than collect interest, tax deed investing is the strategy to focus on. In a tax deed scenario, the redemption period has already passed, and the property is sold outright at auction, often for only the amount of back taxes owed.
At USTLA, we teach investors how to combine both strategies: starting with tax liens for steady, government-backed returns, then advancing into tax deeds to build long-term real estate portfolios. Understanding how these two opportunities work together is the key to achieving both income and asset growth.
Example Redemption Timeline
Let’s say you purchased a tax lien certificate with a 3-year redemption period. This certificate gives you a first-position lien on the property; however, the following year, the property owner once again failed to pay their property taxes. This triggers the issuance of a sub-tax, a new tax lien on the same property.
A sub-tax, or subsequent tax lien, is a second lien issued when additional property taxes go unpaid while the original lien is still active.
As the current lien holder, you’re typically offered the chance to purchase this sub-tax before it goes to public auction. If you are offered the sub-tax, buy it! This presupposes the investor has done proper/thorough due diligence, and it's a "good" lien.
The strongest reason to buy a sub-tax is that a savvy investor has already done the proper due diligence, confirmed the lien is solid, and can build on that research without starting from scratch.
All other property tax liens are considered first-position liens, unless they are “junior” or extinguished through a property tax lien foreclosure. The main exception is municipal liens, which are typically not extinguished and can remain attached to the property.
Redeeming & Foreclosing: What You Need to Know
When your tax lien certificate becomes eligible for foreclosure, the first step is to hire an attorney, and the best time to do that is the moment you're legally allowed to foreclose. It's essential to act promptly and initiate the process without delay. Foreclosure is not about displacing people; in fact, tax lien investing gives property owners extended time and a fair opportunity to resolve their tax debt.
If you didn’t purchase the sub-tax lien, you can still protect your position by paying the county directly. As the original lien holder, you as the investor, is eligible to commence foreclosure first.
Generally, the cost to hire a competent property tax attorney to commence foreclosure will start at $3,500. In many markets, foreclosure costs are recoverable if the property is redeemed by another party of interest.
One of the biggest reasons many people haven’t yet entered the world of real estate investing is the belief that they lack sufficient capital; but, in reality, there’s always money available for a solid deal.
Know the Timeline, Maximize Your Opportunity
The redemption period is more than just a waiting game; it’s a powerful window that determines the outcome of your investment.
Whether you're earning high fixed returns or preparing to acquire the property, knowing how long the redemption period lasts, when it begins, and what actions to take at each stage gives you a clear advantage. Investors who understand and leverage this timeline properly are the ones who achieve the most consistent success in tax lien investing.
At USTLA, we show you how to turn tax liens and deeds into opportunities to acquire real property at massive discounts through our proprietary "Get the Property" strategies. If you’re ready to learn step by step how to evaluate liens, transition into property acquisition, and build lasting wealth, start with our Free 3-Module Online Video Crash Course today.
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Featured Lessons
Vital Information Beginner’s MUST KNOW FIRST so you can Get Started Right
Lesson #1
What is Tax Lien Investing & How Can it Help You Achieve Financial Freedom
Lesson #2
How to Acquire Properties for the Back Taxes & Penalties Only
Lesson #3
How Much Investment Capital is Needed to Get Started?
As with all investments, there is always an element of risk. Even if the interest rates are written into state government law, mandated by state government law, and are regulated by state government law, there is a chance of you losing part or all of your investment. You must always try to get the best education and practice safe investing, no matter which investment vehicle you choose.