There are six states that offer redeemable deeds to investors. The states are Connecticut, Georgia, Hawaii, Rhode Island, Tennessee, and Texas. None of the state’s offering redeemable deeds conduct their sales online. That means that the investor will have to either attend the sale in person or obtain the services of a proxy to bid on their behalf. All of the states with the exception of Rhode Island use the premium bid method to determine the successful bidder.
The terms offered vary by state. The shortest redemption period and highest penalty (return if redeemed) is offered by Texas. Texas law mandates a six-month redemption period (2 years on homestead & agricultural properties) and a penalty of 25% on the amount paid for the deed. Unlike the other five states offering redeemable tax deeds, Texas allows the investor to take immediate possession of the property.
The other states do not allow the investor to take possession of the property until the redemption period has expired. Georgia has a one-year redemption with a 20% penalty if the property owner redeems. Connecticut also has a one-year redemption period and an 18% interest rate. Hawaii has a one-year redemption and a 12% interest rate. Rhode Island is a bit odd in that they use a bid down on percentage of ownership method to determine the successful bidder.
If you are not familiar with this auctioning method, here is how it works. The bidders actually bid on the percentage of property ownership they are willing to accept. For example a bid of 75% would mean that the investor would receive 75% ownership and the current property owner would retain 25% ownership in their property. Once a successful bidder is determined Rhode Island has a one-year redemption and offers a 10% interest rate however after six-months an additional 1% interest charge is added each month, that means if the property owner redeems in the 12th month the investor would receive a total of 16% interest. Tennessee offers a one-year redemption period and 10% interest.
Texas and Georgia are by far the most popular states offering redeemable deeds. Unless you reside in one of the other states if you are interested in redeemable deeds, I would recommend that you start in Texas or Georgia. They offer considerably more sales than the other states and pay the highest rate if the property owner redeems. Counties in Georgia and Texas hold their redeemable deed sales on the first Tuesday of each month as needed. The large counties hold sales each month; the smaller counties may only hold two or three sales per year.
As always the U.S. Tax Lien Association recommends that you conduct a full evaluation on each property that you are interested in prior to investing.