Bored of 5% CD Rates? How Buying 'Tax Liens' Can Earn You 16-36% Guaranteed by the Government

⚠️ 2026 Market Update: Due to the Supreme Court ruling in Tyler v. Hennepin County, the rules regarding "surplus equity" have changed. You may no longer be able to keep the entire property value for just the cost of back taxes in many jurisdictions.

🔨 The 18% "Potential" Return

You park your cash in a Bank CD, and you earn roughly 3-4% (2026 est.). Inflation nibbles away at most of those gains.

Meanwhile, sophisticated investors are lending money to local governments and earning statutory caps of 16%, 18%, or even 36% interest. This isn't crypto, and it isn't a scam.

It is State Law. When a homeowner neglects their property taxes, the county sells that debt to investors as a "Tax Lien Certificate." You pay the taxes, and the homeowner must repay YOU with a massive penalty interest to save their home.

Bored of 5% CD Rates?

This is considered a secured high-yield investment because it is backed by real estate. However, the mechanics differ wildly by state.

State-by-State Interest Rates

Every state operates under its own statute. Some are "Tax Lien" states (you bid on the interest rate), while others are "Tax Deed" states (you bid on the property value itself).

State	Max Interest Rate (Cap)	Redemption Period
Florida	18% (Bid Down)	2 Years
Illinois	36% (18% per 6 months)	2.5 Years
Arizona	16%	3 Years
Iowa	24% (2% per month)	2 Years

"Bid Down" & Foreclosure

The "Bid Down" Trap: In competitive markets like Florida, you don't automatically get 18%. Investors compete by bidding the interest rate down. Often, liens are sold at 5%, 1%, or even 0.25% just to park cash.

🏠 The Foreclosure Myth:

Historically, if the owner didn't pay, you got the house debt-free. However, post-2023 SCOTUS rulings, you may be required to sell the home and return the surplus equity to the original owner.

The Advantage: Even if you don't keep the whole profit, your lien is "Super Priority." It wipes out most junior liens (and often the mortgage) during foreclosure, ensuring you get paid first.

Buyer Beware

Before you bid a single dollar, you MUST perform due diligence.

• Junk Properties: You might be buying a lien on a worthless strip of land between two fences or a contaminated gas station (EPA Liability). If the owner walks away, you are stuck with the liability.
• IRS Liens: Federal tax liens typically survive foreclosure and stick to the property.
• Bankruptcy: If the homeowner files Chapter 13, your interest payments may be frozen or reduced by the court.

Chief Editor’s Verdict

Tax Lien investing is not passive; it is an active business. You must research the property, check the title, and understand the auction format (Online vs. Live).

For a secured return, it beats a CD, but the "get rich quick" days of stealing houses for pennies are legally over. Start with $500 in a local "Over-the-Counter" (OTC) list to learn the ropes without fighting institutional algorithms.

[Legal & Financial Disclaimer]
Tax lien investing involves significant risk, including the loss of principal. Real estate laws vary by county and are subject to change (e.g., impact of Tyler v. Hennepin County). Properties may have environmental liabilities (EPA) that transfer to the new owner. This article is for educational purposes only and does not constitute financial or legal advice. Always consult with a Real Estate Attorney before bidding at auction.