Tax Lien Certificate Law and Legal Definition

A tax lien certificate is a document issued by a local government at an auction for a property that has a tax lien against due to the failure of the property owner to pay property taxes. The buyer is essentially purchasing the right to collect past due taxes. Certain states allow the tax lien to become a first lien on the property, which is then turned around and sold at auction as a tax lien certificate.

When purchasing tax liens, the purchasers of a government-issued tax lien certificate will then get one of two things:

  1. A state-mandated yield from the lien, which the delinquent taxpayer must pay in order to release the lien, OR
  2. Title to the property if the delinquent taxpayer fails to pay the amount due within the required time period.

The IRS and other creditors can get priority over tax lien certificates in certain instances, such as bankruptcy, so proper research needs to be conducted prior to investing in tax lien certificates.