In the United States, Tax Lien Investing Enters a Critical Period as Courts Redraw the Rules

Written by:

Steve Marcinuk

Date:

15 May 2026

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Local governments across the United States record roughly $25 to $28 billion in unpaid property taxes each year, money that would otherwise fund schools, roads, emergency services, and public infrastructure. For decades, tax lien and tax deed investing has channeled private capital into that gap, providing investors with returns while keeping public budgets intact. But two Supreme Court cases and a wave of state legislative action are forcing the industry to reckon with new legal boundaries at a moment when clarity matters most.

Brad Westover, Executive Director of the National Tax Lien Association (NTLA), has spent roughly 30 years in this space, first deploying $1.5 billion across 23 states on behalf of various companies, and for the past 14 years, leading the only national nonprofit association representing the full spectrum of industry participants.

Understanding the Basics

Tax lien investing is frequently misunderstood, even among experienced real estate professionals. When a property owner falls behind on taxes, local governments in many states allow investors to pay the outstanding balance and receive a certificate that earns penalties and interest during a redemption period. If the delinquent taxpayer repays within that window, the investor collects the principal plus accrued interest. “You’re not buying property,” Westover explains. “You are simply buying paper, or a promise to pay penalties and interest.”

Tax deed investing works differently. When the redemption period expires without payment, the property moves toward foreclosure and is sold at auction. Investors are acquiring actual real estate, often sight unseen, beyond what can be observed from the street. “You’re looking from the road at a property and guessing what’s on the inside,” Westover notes.

The NTLA’s membership reflects both sides of the market, with roughly 70% being investors on either the lien or deed side. The remainder includes tax collectors, treasurers, technology and data providers, and tax foreclosure attorneys.

A Supreme Court Decision Still Rippling Through State Legislatures

The most consequential recent development came from the Supreme Court’s 2023 ruling in Tyler v. Hennepin County, Minnesota. The court held that when a tax foreclosure produces proceeds in excess of the amount owed, the surplus must be returned to the former property owner rather than retained by the county. Seven to nine states lacked compliant legislation and had to act quickly.

The NTLA has been working with state legislators to develop language that satisfies the ruling while preserving the functional mechanics of the tax lien and deed market. New Jersey and Arizona have already adopted compliant frameworks that have been tested in court. The association is now pushing similar language in Illinois, which has 24 days remaining in its current legislative session.

Without clear, workable legislation, the process by which investors participate in tax deed auctions becomes legally uncertain, reducing investor interest and, by extension, the funding that flows back to local governments.

A New Case Before the Court

Even as states work through Tyler compliance, a second Supreme Court case is drawing industry attention. Pung v. Isabella County, Michigan, involves a property that was tax foreclosed after the owner failed to pay taxes for over three years. The property sold at auction for approximately $70,000. The county retained the taxes owed and made the overage available to the former owner’s estate, consistent with Tyler. The investor then spent 18 months renovating the property and sold it for considerably more.

The former owner’s heirs filed suit, arguing the county should have obtained a higher price at the original auction. The NTLA filed an amicus brief arguing that this misunderstands the nature of a tax deed purchase. Buyers at these auctions make decisions based on limited information, assume renovation risk, and invest time and capital with no guarantee of return.

“He had over 1,000 days actually to sell it for whatever he could get,” Westover says of the original owner. “But he chose to do nothing.”

The NTLA expects a ruling within 30 days and anticipates the court will side with the county. A ruling in favor of the heirs could cast doubt over completed tax deed transactions and discourage investor participation in a market that depends on private capital to function.

Who Is Buying, and What Has Changed

The composition of the tax lien investor base has remained relatively stable over the past five years, though rising interest rates have affected the math. When the federal funds rate was near zero, risk-adjusted returns on tax-certificate portfolios looked different from what they do today. Higher borrowing costs affect investors who use leverage, though the NTLA notes three established lending institutions that work with experienced participants in the space.

One emerging development is the early movement of cryptocurrency into the tax lien certificate market. Westover is aware of at least one firm exploring the tokenization of tax lien certificates, though this remains nascent.

On the technology side, the shift from in-person auctions to online platforms is well established. The data available to investors has also expanded significantly. Where local government delinquency lists once provided four or five data points per property, NTLA member companies now offer platforms with 99 or more data points per property, including payment history patterns, land value, structure value, and the number of outstanding prior certificates.

Where Investors Get It Wrong

Westover is candid about risks that less experienced investors tend to underestimate, particularly on the tax deed side. A common misconception is that tax deed investing offers a straightforward path to undervalued real estate. In practice, roughly 90% of tax foreclosures involve vacant land rather than structures, which considerably narrows exit options.

For properties that do include structures, due diligence extends well beyond condition. Investors need to understand whether other liens survive foreclosure, whether code enforcement violations exist, what land-use classifications are permitted, and whether environmental liabilities remain from prior uses such as gas stations or dry cleaners.

The broader concern Westover raises is the presence of bad actors in an unregulated space. The tax lien and deed market has no federal regulatory framework, creating room for self-described educators who oversimplify risks and target inexperienced investors. “You can buy a tax lien on swampland in Florida or in the desert in the middle of nowhere, Arizona, and it has really no value,” he says. The NTLA addresses this through its NTLA University program, with a dedicated tax deed master class expected to launch within 60 days.

What Comes Next

The legal questions now before the Supreme Court and state legislatures will determine whether private capital continues flowing into this market at current levels. If the Pung ruling favors the heirs, investors may pull back from tax deed auctions, leaving more vacant properties unrehabilitated and less revenue flowing to local governments. If states continue adopting clear Tyler-compliant frameworks, the market is likely to stabilize and potentially attract new participants.

For investors already active in this space or considering entry, the next several months will clarify important legal boundaries. Understanding both the opportunity and the complexity, including the due diligence requirements, the regulatory gaps, and the legal risks, has rarely mattered more.

About the Expert: Brad Westover is the Executive Director of the National Tax Lien Association (NTLA), the only national nonprofit association representing participants in the tax lien and tax deed investment industry.

This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.