Can I get financing to buy a tax deed property?

Hard money lenders will sometimes fund tax deed purchases, but most require a clear or insurable title before they'll fund. That means you typically need cash for the auction and can refinance after quiet title is complete. Conventional lenders won't touch a tax deed property without title insurance, which requires quiet title in most states.

Do banks accept contingencies on REO properties?

Rarely on inspection, almost never on financing unless the bank is offering owner financing. Most bank addenda include an as-is clause and require proof of funds or a pre-approval letter upfront. Some asset managers will allow a short due diligence window — 7 to 10 days — without calling it a formal contingency, but your leverage to walk without losing earnest money depends entirely on how the bank's addendum is written.

What happens if someone is still living in a property I bought at a tax deed sale?

You own the property, but you still have to remove the occupants through a formal eviction process — the deed doesn't authorize self-help removal. In states with a redemption period, like Michigan or Alabama, an occupant who is also the prior owner can reclaim the property during that window by paying your bid amount plus a statutory interest rate, which in Alabama is 12% annually. Budget for carrying costs and possible eviction expenses before you bid.

Are IRS liens a bigger problem on REO or tax deed properties?

Both can carry them, but they surface more predictably on REO because title searches are standard in that process. On a tax deed property where title work is minimal or skipped, an undiscovered IRS lien can surface after closing. The IRS has 120 days to redeem a property after a tax sale under federal law, and that right exists regardless of what the county deed says.

Is REO investing still worth it when institutional buyers dominate the market?

In major metros, solo investors rarely win on price against institutional buyers with automated acquisition systems. The better opportunity is in secondary and tertiary markets — think Youngstown, Ohio or Shreveport, Louisiana — where institutional buyers have less presence and REO inventory sits longer. Lower competition means longer due diligence windows and more willingness from asset managers to negotiate on price and terms.

REO vs Tax Deed Investing

REO and tax deed investing both put distressed properties in your hands at below-market prices, but they work through completely different mechanisms, carry different risks, and demand different skill sets. REO (real estate owned) means buying directly from a lender — usually a bank or servicer — after a foreclosure that produced no buyer at auction. Tax deed investing means buying a property at a government auction after the owner failed to pay property taxes, often for two to five years. Same destination, very different roads.

How Each Process Actually Works

With REO, the bank already owns the property. You submit an offer through a listing agent or an online platform like Hubzu or Auction.com, the bank's asset manager reviews it, and a counter-offer cycle follows. Closing typically takes 30–60 days because banks move slowly and require their own addenda. Expect to sign a 10- to 20-page bank addendum that heavily favors the seller.

With a tax deed sale, a county treasurer or tax collector runs a public auction — either live or online. You bid against other investors. Winning means you leave with a deed the same day, or within a few weeks depending on the state. Florida and Georgia hold live courthouse auctions. Michigan and California allow online bidding through platforms like RealAuction or Bid4Assets.

Upfront Capital Requirements

REO purchases look like conventional real estate transactions. You need earnest money — typically 1–5% of the purchase price — plus your down payment or full cash at closing. On a $150,000 REO, a 20% down payment means $30,000 before you even factor in closing costs, inspections, or repairs.

Tax deed auctions demand different cash flow. Most counties require certified funds for the full bid amount, payable the same day or within 24–48 hours. A $40,000 winning bid at a Texas tax deed sale means $40,000 in your account before you walk in. Some counties — Harris County, Texas, being one example — will disqualify you permanently if your check bounces.

Title Quality and Clearing Costs

REO title is generally cleaner. The foreclosure process extinguishes most junior liens — second mortgages, mechanics liens, HOA debt in many states. You can usually get a standard owner's title policy. Some REO properties still carry IRS tax liens (which survive foreclosure and require a 120-day notice period to the IRS under 26 U.S. Code § 7425), but a competent title company identifies those before closing.

Tax deed title is messier. A tax deed conveys only what the county had — the right to collect delinquent taxes. It does not automatically eliminate prior mortgages, easements, or competing ownership claims in every state. Georgia tax deeds, for instance, require a separate quiet title action before most title insurers will write a policy. That action can cost $1,500–$4,000 in attorney fees and take 3–6 months. Michigan's tax deed process provides stronger title, but you still face a 6-month post-sale redemption period during which the prior owner can reclaim the property by paying what you paid plus interest.

Warning: Buying a tax deed property and immediately reselling it without a quiet title action can kill the deal at your buyer's closing. Many retail buyers use financing, and their lender's title company will decline to insure a property that hasn't been through quiet title. Budget for this step before you calculate profit.

Due Diligence Windows

REO gives you room to breathe. Banks accept inspection contingencies less often than private sellers, but you typically have 10–15 days to walk the property, pull permits, and order a sewer scope. You can run your numbers with real data.

Tax deed auctions give you almost nothing. Most counties prohibit entry to occupied or locked properties before the sale. You're bidding on a property you may have only seen from the street and examined through county assessment records, Google Street View, and whatever the neighbors will tell you. Bidding blind on a $60,000 property is normal. Winning a property with $25,000 in deferred foundation repairs you couldn't see is also normal.

Returns and Competition

REO margins have compressed significantly since 2012. Institutional buyers — Invitation Homes, FirstKey Homes, and dozens of regional operators — have automated REO acquisition and can move faster than most solo investors. In hot markets like Phoenix or Atlanta, REO listings receive offers within hours, and winning bids often land at 95–100% of list price. You're not stealing anything in those markets.

Tax deed auctions are more localized and harder to systematize at scale, which keeps competition lower in rural counties. A solo investor bidding at a 200-parcel auction in a rural Alabama county faces a very different competitive environment than one bidding on a Memphis REO on Hubzu. Discounts of 40–60% below assessed value are still achievable at low-volume county auctions. The trade-off is that those properties are often in markets with limited resale demand.

For state-specific tax deed rules — including redemption periods, quiet title requirements, and bidding procedures — the state guides at Tax Sale Ninja break down the mechanics county by county.

Which One Fits Your Situation

REO suits investors who want cleaner title, defined timelines, and properties they can physically inspect before committing capital. It works well if you have relationships with REO listing agents or access to platforms with inventory. The margin is thinner, but the process is more predictable.

Tax deed suits investors comfortable with ambiguity — title gaps, limited inspection access, and the possibility that a winning bid secures a property with a problem you didn't anticipate. The ceiling is higher because the discounts are deeper, but so is the floor. A $15,000 tax deed property that needs a $30,000 quiet title action plus $40,000 in repairs is a loss, not a deal.

Many experienced investors do both: use REO for reliable, lower-risk deals that produce steady volume, and use tax deed for opportunistic buys where the discount justifies the uncertainty. Neither strategy is universally superior. Your available cash, your tolerance for title risk, and your local market conditions determine which one makes sense for you right now.