Tax Lien Investing Glossary: Essential Terms Every Investor Should Know
Written By Tony Martinez
Main Points
Here at the U.S. Tax Lien Association, we use real estate and investing terminology quite often, and if you’re new to this field, it can feel overwhelming fast.
That’s why we’ve created this quick-start glossary to help you understand the core terms, concepts, and distinctions that set tax lien investing apart from similar-sounding strategies.
Whether you're exploring tax liens, tax deeds, or just getting familiar with the process, these definitions will give you the foundational knowledge you need to invest with confidence.
Interest Rate (Annual)
This is the fixed annual percentage return earned by the investor on a tax lien certificate.
This rate is set by state law and represents the amount of interest the property owner must pay in addition to their back taxes. Annual interest rates on tax lien certificates typically range from 8% to 24%, depending on the state.
It is designed to compensate the investor for fronting the delinquent taxes and to incentivize quick repayment by the property owner. Importantly, this return is legally protected and does not fluctuate with market conditions. This makes it a stable, predictable component of tax lien investing.
Over-the-Counter (OTC) Liens
OTC liens refer to tax lien certificates that were offered during a public auction but went unsold. After the auction concludes, these unsold certificates are held by the county and made available for direct purchase by investors, without any competitive bidding. This post-auction opportunity is known as “over-the-counter” (OTC) purchasing.
For new or more conservative investors, OTC liens can be an attractive way to get started because they allow more time for due diligence. Since these certificates didn’t draw bids during the auction, they often remain in the county’s inventory for weeks, months, or even years, giving you the opportunity to carefully research the property before investing.
Understanding these foundational terms is the first step toward making informed, confident decisions in the world of tax lien and tax deed investing.
Redemption Period
The legally defined amount of time a property owner has to repay their delinquent property taxes after a tax lien certificate is issued is known as the redemption period.
During this period, typically ranging from 6 months to 4 years, depending on the state, the property owner can "redeem" the lien by paying the owed taxes back plus any interest and fees. If the lien is not redeemed within this timeframe, the investor may have the right to initiate foreclosure and potentially acquire the property.
This period is critical in determining whether the investment generates interest, income, or becomes a path to property acquisition.
Redeemed Lien
A redeemed lien occurs when the property owner repays the full amount of delinquent taxes, including any interest and fees, within the redemption period.
This repayment includes the original amount of delinquent taxes, plus any applicable interest and administrative fees set by state law.
Once the lien is redeemed, it is officially considered satisfied and is removed from the property’s record. The investor who purchased the lien receives their initial investment back, along with the earned interest; paid as a lump sum. While the investor does not gain ownership of the property, they achieve their intended return through a secure, interest-based payout.
Tax Deed
This refers specifically to an investment strategy focusing on acquiring property.
Tax deed investing is a more direct path to owning real estate. In tax deed states, when a property’s taxes go unpaid for a certain number of years, the county sells the property, typically through public auction. The highest bidder receives the deed and becomes the new owner, often free and clear of mortgages.
Unlike tax lien certificates, which are designed to generate interest income, tax deeds are about acquiring real estate at a deep discount. This strategy requires more capital, more research, and often more post-purchase work (such as repairs, title cleanup, or occupancy). Still, it also offers the potential for higher returns through resale or rental income.
Key Features of Tax Deed Investing:
Direct acquisition of real estate at below-market prices
No redemption period in most cases, the property is yours immediately
Requires more capital up front than tax liens
Higher potential returns, but also more active management
May require title research, legal cleanup, or property repairs
Tax deed investing appeals to those who want to own and control real estate, whether for flipping, renting, or holding long-term. It typically involves more research and hands-on work than tax lien certificates but offers the chance for substantial returns.
Tax Lien Certificate
This refers to the specific strategy of investing for interest rates.
A tax lien certificate is a specific investment instrument available in certain states. When a property owner fails to pay their taxes, the county sells a tax lien certificate to an investor. In return, the investor pays the back taxes and earns a fixed interest rate, set by state law, often between 8% and 24% annually.
This is not an ownership strategy. You don’t get the property; you get a legally protected, interest-bearing lien that is repaid when the property owner settles their debt. It’s an up-front low-effort, interest-focused strategy that appeals to investors seeking secure returns without the hassle of property management.
Successful tax lien investing requires:
Understanding state-specific systems (tax lien certificate, tax deed, or redeemable deed)
Knowing how to identify viable, high-return opportunities through research
Evaluating property conditions, legal encumbrances, and market potential
Strategically choosing between earning interest or acquiring real estate
Ready to Learn More?
Now that you know the terms, you can decide for yourself what you want to learn more about.
Here at USTLA, we specialize in property acquisition through our proprietary Get the Property Strategies. These systems show you exactly how to acquire valuable real estate for the price of the back taxes and penalties only and own them free and clear with no mortgage.
Start by checking out our Free Online Tax Lien Investment Course today and take the first step toward building lasting financial freedom.
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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.