Reviewing property taxes and assessments is one of the most useful checks you can run before you bid on a tax lienA legal claim or right against a property that serves as security for a debt or obligation owed by the property owner.. It shows you what is owed, how long it has gone unpaid, and whether the county’s numbers for the property make sense. This is part 7 of our due diligenceThe research and investigation process an investor conducts before purchasing a tax lien or tax deed to evaluate the property and assess risk. series.
Why Property Taxes and Assessments Matter
A tax lien exists because property taxes went unpaid. That makes the tax record the best place to start your research. It tells you the size of the debt you would be paying, how the owner has handled past bills, and whether other charges are attached to the property.
Assessments matter for a second reason. The county’s assessed valueThe dollar value assigned to a property by a local tax assessor for the purpose of calculating property taxes. is the figure used to calculate the tax bill, and it can also give you a rough starting point when you compare the lien amount with what the property may be worth. Neither number is a guarantee. Both are inputs for your own judgment, and all investing involves risk.
Property Taxes vs. Assessments: A Quick Explainer
These terms are related but not identical:
Assessed value is the value a county assigns to a property for tax purposes. It is not always the same as market value.
Property taxes are the amounts charged each year, based on the assessed value and local tax rates.
Special assessments are separate charges that some localities add for specific improvements or services. Rules differ by state and local government.
Terminology and procedures vary by state and county, so always confirm the details with your county’s offices.
How to Review the Tax Payment History
Ask the county treasurer or tax collector for the property’s tax history, or look it up on the county’s website if it is available online. When you review it, look for:
Which tax years are unpaid. Know exactly what the lien you are bidding on covers.
Penalties and interest. Delinquent balances can grow, so note how much of the amount is tax and how much is added charges.
A pattern of nonpayment. A property that has been delinquent for several years tells a different story from one that missed a single bill.
Other outstanding balances. Confirm whether prior-year taxes or other liens may also exist, and how your state treats them.
How to Check Assessment Accuracy
Assessed values can lag behind the market or sit above it. Before you rely on the number, compare it with other signals:
Recent sales of similar properties nearby.
Property details in the assessor’s record, such as size, type and condition, to see whether they match what is actually there.
Recent changes in the assessed value, which can show a reassessment or a correction.
An assessment that is far off from reality can affect the tax burden and your view of how much the property is worth compared with the amount owed. Some counties allow assessment appeals, which is usually an option for the property owner, not the lienholder.
Look Beyond the Tax Bill
Special assessments, utility charges and other local charges can sit alongside property taxes. Ask the county and the local municipality what applies to the parcel, and whether any of those charges could affect your position as a lienholder in your state. When you are not sure, ask a qualified professional before you bid.
Where to Find the Records
County treasurer or tax collector: tax bills, payment history and the amount owed.
County assessor: assessed value, property details and parcel data.
County recorder: recorded liens and ownership records.
City or municipal offices: local assessments, code violations and utility charges.
Red Flags to Watch For
A balance that is large compared with the property’s likely value.
Many years of unpaid taxes with a growing balance.
An assessed value that looks far higher or lower than nearby properties.
Special assessments or other charges you cannot explain.
Other liens that may complicate the situation.
None of these means you must pass, but each one is a reason to research further before you commit money.
How This Fits Into Your Due Diligence
Taxes and assessments are one piece of the picture. Pair this check with the legal rules in part 6, Ensuring Legal and Regulatory Compliance, and the owner’s financial picture in part 8, Evaluating the Owner’s Financial Situation. For the full list of checks, see the 10-part due diligence series or our complete guide to tax lien due diligence. To put your research to work at the sale, read our guide on how to evaluate tax lien properties at auction, and compare state rules in our tax lien states vs. tax deedA legal document that transfers property ownership to the government or an investor after the owner fails to pay property taxes for an extended period. states map.
Important Notice
This page is educational and is not legal, tax or financial advice. Rules and procedures vary by state and county and change over time, so confirm current requirements with your county treasurer and a qualified professional before you invest. All investing involves risk, and results vary.
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