Tax Sale

A tax sale is a public auction a local government holds to collect unpaid property taxes, selling either the property itself or a lien against it. Some BRRRR investors use tax sales to buy neglected houses below market, though the rules and risks differ widely by state.

In tax deed states the winning bidder gets the property, subject to any redemption period the law gives the former owner. In tax lien states the bidder buys the debt and earns interest, and only gets the house if the owner never pays.

Title is the main problem. Many title insurers will not cover a tax deed right away, and without title insurance a lender will not make the cash-out refinance. Investors often need a quiet title action before the refinance step of BRRRR is possible, which adds months and legal fees to the plan.

Further reading: Tax Sale on Wikipedia.