Tax sales occur in several flavors.  Some states work as Tax Liens, some as Tax Deeds and some as Tax Deeds that behave like Tax Liens (combo).

 

Tax liens are instruments where an investor is given the opportunity to pay-off the back taxes on some person's property in exchange for lucrative interest rates.  The investor has no rights to the property in question until after the redemption period ( up to 3 years in some cases ) and after the investor forecloses on the property.  In fact, the tax lien investor could be arrested for trespassing if he did so.

 

In a tax deed sale the investor receives a deed to the property and has all the rights to the property as a normal owner.  The investor receives no interest or penalty payments but can aquire the property for a fraction of its total value.  It is not unusual to pick up property at a deep discount up to 50 to 60 percent of its worth.

A combination state is a state that uses tax deeds that act in some ways like a tax lien certificate does.  Texas is one such state.  In the bidding for a tax lien (premium bidding method) investors bid amounts of money equal to the tax owed.  Investors often receive interest and penalty payments on only the taxes owed...not the amount of money bidded in excess of the back taxes (the premium).  In a combination state, like Texas, property owners must pay penalties and interest on the entire amount of the bid...even if this is calculated on tens of thousands of dollars.  There is still a redemption period sometimes up to two years.