Tax Lien vs Tax Deed Investing: What the Institutions Know

The core difference in tax lien vs tax deed investing is what you walk away owning. A lien is a debt instrument secured by real property — you want to get paid back with interest. A deed is the property itself, bought sight unseen, with title that no insurer will touch until you clean it up. Redeemable deeds are a third product with their own statutory clock, and confusing the three is how new buyers lose money.

Justin Weisenbacher spent 30 years in this business and purchased and serviced more than $2 billion in delinquent property tax liens across 28 states, first through a Lehman-backed partnership, later through American Tax Funding. He has sat on the institutional side of the table — the side that buys whole municipal pools before an auction ever happens.

What follows is the structural breakdown: what each product actually is, why tax deed title requires a quiet title action, what returns look like now that bidding moved online, and the specific ways an individual can operate around bank-financed capital instead of bidding against it.

From the Real Estate Pros Show

This article draws on an interview with Justin Weisenbacher of LienWatch on the Real Estate Pros Show, hosted by Quentin Edmonds.

Liens, Deeds, and Redeemable Deeds Are Three Different Businesses

Weisenbacher breaks the field into three products stacked on top of each other: tax liens at the top, tax deeds beneath them, and redeemable deeds as a separate business entirely. Each has its own set of rules and regulations, and those rules are set at the state level.

A tax lien is the taxing authority’s claim against the property, sold to an investor so the municipality gets its cash now. You are buying a receivable. The outcome you want is redemption — the owner pays, you collect principal plus statutory interest.

A tax deed is what you buy when the government does the foreclosing itself. Roughly 30 states have enabling legislation allowing the sale of the delinquent property tax lien. The other states do not sell the lien at all; they foreclose it, take title, and sell a deed at auction. You are buying real estate, not a note.

A redeemable deed sits in between — you take a deed, but the former owner retains a statutory right to redeem it from you within a set window, usually with a penalty attached.

The practical rule Weisenbacher applies to every question he gets asked is that the answer begins with the state. The statute governing your remedy may not even be where you expect it. He points to Connecticut, where attorneys would call him unable to find the authority in the property tax statute — because it was in the water and sewer statute.

Treat each state as a separate business with its own underwriting, timeline, and foreclosure procedure. Expertise in one does not transfer cleanly to the next.

Why Tax Deed Title Is Not Insurable Title

This is the most expensive misunderstanding in the business. Buyers assume a tax deed gives them marketable title. It does not.

“People think, oh, well, I get marketable title, but you don’t get marketable title because it’s not insurable title,” Weisenbacher said. “And there’s a big difference. So you have to do a quiet title action.”

Until that quiet title action runs, you own something you generally cannot insure and cannot cleanly convey. A retail buyer’s lender will want a title policy. A title company will want the cloud removed. That means attorney fees, a filing, service on interested parties, and months of calendar time — all of which has to be priced into your bid, not discovered afterward.

The second problem compounds the first: you cannot inspect. As Weisenbacher put it, “you legally can’t step foot on the property because it’s not like an REO you’re buying. You don’t have legal rights. So you have to kind of guess what’s inside and the condition.”

That changes how the bid gets built. You are underwriting an exterior drive-by, county records, and comps — then assuming the interior is worse than it looks. Weisenbacher’s institutional shop saw the full range of what “the ugly” means in practice: properties where the REO department’s job was to remove bodies and board the place up, and a building taken in Connecticut that turned out to carry heavy metals contamination running into Long Island Sound.

The discipline is simple and unforgiving. Buy it right, because there is no inspection contingency, no walkthrough, and no clean title waiting on the other side.

People think, oh, well, I get marketable title, but you don’t get marketable title because it’s not insurable title. And there’s a big difference. So you have to do a quiet title action.

— Justin Weisenbacher, LienWatch

What the Advertised Returns Actually Look Like

The headline rates quoted at weekend seminars are statutory maximums, not realized yields. Weisenbacher is blunt about it: “Tax lien investing is extremely difficult. It is when you cross different states. It’s not what they tell you. It’s not, oh, you just show up and you put your paddle up to bid. Now it’s all internet-based. It’s not that easy. And the returns are not as great as people say.”

Two things changed. First, the auctions moved online. The old model rewarded physical presence, local knowledge, and the willingness to sit in a county room all day. An internet auction strips out that friction and invites every bidder with a login, which compresses yields through bid-down mechanics.

Second, institutional capital arrived. Before the Jersey City and New York City securitizations, this was a fragmented business of mom-and-pop investors buying at their local county government. Weisenbacher’s own financing work — a $50 million credit facility that was consumed in a couple of months, then a $500 million senior line with Lehman Brothers — is part of what changed that.

Compare that to the Florida environment he described in the early 90s: 18% on waterfront properties, condos and houses, with almost no competition and what he characterized as near risk-free returns. The reason it worked was structural, not nostalgic. Florida is a cherry-pick jurisdiction. “If I don’t want property A, I don’t have to bid on it. Property B, yes, I have to bid on it.”

Selective bidding is what made high rates safe. When you can decline the bad collateral and still buy the good, the stated rate and the realized return converge. Where you cannot cherry-pick, they do not.

Auctions vs Bulk Sales: How Institutions Changed the Buy Side

The most important shift for individual investors is not what happens at the auction. It is what happens before one exists.

Weisenbacher’s firm moved its model from bidding at auctions to buying pools direct from the taxing authority. The City of Hartford had a $20 million pool of delinquent property taxes. “We would take the whole thing, the good, the bad, and the ugly,” he said, and then collect on it.

They went further. In Kentucky, they approached the revenue cabinet directly and bought the entire state’s delinquent taxes — the first buyer to do it. That deal involved hiring lobbyists and changing statutes to make the transaction work.

The implication for an individual is straightforward. A municipality that can sell its entire delinquency in one wire, with no auction administration and no collection headache, has an obvious reason to do so. When that happens, the inventory you were planning to bid on never reaches a public list.

The tradeoff that makes bulk buying work is that the buyer takes everything — the clean suburban residential liens and the contaminated commercial building in the same pool. That only pencils if you have the capital base to absorb the losers and the servicing operation to collect on thousands of accounts. Weisenbacher’s shop had roughly 367,000 liens across 28 states and 5,000 foreclosures running at one point.

If you are buying at auction, assume you are seeing the residual. Underwrite accordingly, and look for jurisdictions small enough or structured in a way that bulk sales are not practical.

Competing Against Institutional Capital as an Individual

Weisenbacher’s answer to competing with large buyers is not to compete. “I had to compete against JP Morgan. So I know I couldn’t beat them on cost of capital. So how would I beat them? So I swam around them. I knew exactly what their hot buttons are.”

The actionable version of that is land use codes. Institutional buyers screen out entire categories of collateral before they ever look at an individual parcel — property types that create environmental exposure, servicing complexity, foreclosure difficulty, or reputational risk. Those exclusions are consistent and knowable. Anything an institution’s credit box rejects is, by definition, a category where you are not bidding against a bank-financed balance sheet.

The second lesson is about what kind of business you are actually running. Weisenbacher’s firm was an arbitrage shop: bank financing on one side, a coupon on the liens on the other, and the return earned on the spread. That orientation changes everything downstream.

“We weren’t foreclosing on people to get the real estate,” he said. “We really wanted people to pay.” He told his collection staff directly that delinquent property taxpayers were customers and had to be treated with dignity and respect. The firm ran more payment plans than any competitor, and would sell properties back to the people who had lost them.

That is not sentiment, it is yield management. A performing payment plan generates interest on schedule without legal spend, foreclosure timelines, property management, or the risk that the asset you take back is worth less than your basis. Foreclosure is the backstop, not the business model.

Relationships With the Taxing Authority Are Part of the Underwriting

The supply side of this business runs on relationships, and Weisenbacher’s rule is to price for the long term rather than the single payday. “Don’t think how much money can I get quickly. Think about long-term relationships.”

In Connecticut, his firm worked with municipalities including Danbury and Newtown as the only buyer in the market. “We were their ATM machine,” he said. The town needed money for the police department or the fire department, would collect up their liens, call, and the firm would buy at par and pay. Being the reliable buyer on the other end of that phone call is what produced repeat access to inventory.

The payoff showed up in a single transaction. The firm foreclosed on a property a block from City Hall and took title. The mayor’s office called: the mayor did not want a boarded-up building a block from City Hall, and asked what could be done.

Weisenbacher’s answer was a swap. The firm handed the property back to the municipality and took substitute liens in exchange — roughly $300,000 worth. The town solved a visible political problem. The firm converted an REO headache, with its carrying costs and resale risk, into performing paper of equivalent face value.

Neither side took that deal because of the economics of that one asset. They took it because both expected to keep transacting. If you are buying in a jurisdiction more than once, the way you handle the ugly outcomes determines what you get offered next.

Frequently asked questions

What is the difference between a tax lien, a tax deed, and a redeemable deed?

A tax lien is the government’s claim for unpaid taxes sold to an investor as a debt instrument — you collect principal plus statutory interest when the owner redeems. A tax deed is the property itself, sold after the taxing authority has already foreclosed its own lien. A redeemable deed gives you a deed subject to the former owner’s statutory right to redeem it from you within a set period.

Roughly 30 states have enabling legislation to sell the lien. The remaining states foreclose the lien themselves and sell a deed instead. Each product carries its own rules, timelines, and remedies, and those rules are set state by state.

Do you get clear title when you buy a tax deed?

No. A tax deed does not convey marketable or insurable title, which means a title company will not insure it and most retail buyers’ lenders will not finance a purchase from you until the cloud is removed.

The standard remedy is a quiet title action. Factor the attorney fees and the months of calendar time into your bid rather than treating it as a surprise cost after closing.

Can you inspect a property before bidding at a tax deed sale?

No. You have no legal right to enter the property, which is the key difference between a tax deed and an REO purchase. You are underwriting from county records, comps, and whatever you can observe from the street.

That means interior condition is an estimate. Price the bid assuming the inside is in worse shape than the exterior suggests, and leave room for environmental or structural problems you cannot see.

Are tax lien returns really 18 percent?

Those are statutory ceilings, not typical realized returns. Justin Weisenbacher, who purchased and serviced over $2 billion in tax liens across 28 states, says plainly that the returns are not as great as people claim and that the business is difficult once you cross state lines.

The 18% figure comes from an earlier era. In early-90s Florida he saw 18% on waterfront properties, condos and houses with almost no competition — and crucially, a cherry-pick bidding structure that let buyers skip the bad collateral. Online auctions and institutional capital have compressed that considerably.

How can an individual investor compete with institutional tax lien buyers?

Not on cost of capital. Weisenbacher’s approach when facing bidders like JP Morgan was to “swim around them” by learning their hot buttons — specifically, which land use codes institutional buyers exclude from their screens.

Those excluded categories are where bank-financed capital is not bidding. The other edge is relationship-driven access at the municipal level, where being a dependable counterparty gets you offered inventory that never makes it to a public auction list.

The bottom line

Before you place a single bid, confirm which of the three products your target state actually sells and what it takes to get from your purchase to insurable title in that jurisdiction — then subtract that cost and timeline from your maximum bid. Everything else in this business is downstream of that one piece of homework.