Unpaid Property Tax Auctions: A Safe Way to Invest - Diamond and Diamond Lawyers
  • Friday, 08 January 2021

Unpaid Property Tax Auctions: A Safe Way to Invest

Investing in Unpaid Property Tax Auctions and real estate in general, is thought of as a great way to increase your portfolio of assets and your net worth. 

It offers passive income with long-term wealth. There are, however, several ways to invest in real estate.  I suggest the following:

Investing in unpaid property tax auctions or property tax lien investing can increase your real estate wealth. If you’ve knowledge of the real estate market and are confident in what you’re doing, buying liens can generate a lucrative amount over time. 

Unpaid Property Tax Auctions

Unpaid Property Tax Auctions

Tax sales are divided into two parts;  a sale of the actual property and its outstanding taxes.  Then a tax lien sale, which is the sale of only the property’s liens.

Liens occur when property taxes are unpaid for a certain period. This varies based on the particular regional law regarding tax sales. The municipality then places a lien on the property. The lien can be sold on its own at an auction. The sale of the actual property can only happen once the lien is removed.

The aim of the sale is for the municipality to recover the unpaid property taxes. It’s beneficial for them as they receive the money almost immediately.

Advantages of Buying an Unpaid Property Tax Auction

Investing in an unpaid property tax auction can be a lucrative investment. The benefits are:

  • A below market value sale:  If the tax sale includes the property, the municipality isn’t interested in obtaining market value.  They aim to recover the outstanding taxes with interest, the penalties, and the costs incurred from having the sale.  
  • When purchasing tax liens, money is made from the interest of these liens which can be very beneficial as these interest rates are usually high.

If the house is included in the auction, the mortgages related to it are often eliminated. However, this isn’t the case with mortgages owed to Ontario’s government (the “Crown”), Toronto, Canada, government agency, or crown corporation.

Investing in an unpaid tax auction reduces the competition you would face when purchasing using conventional methods. However, there’ll be lots of paperwork to complete and obtaining legal consultation will be helpful.

Another suggestion is to familiarise yourself with how the real estate auctions operate. Some purchases made at an auction can be a good investment, and some can be bad. 

The risk of purchasing a property at a tax auction is that you won’t know what you’re buying. Unfortunately, the owner of the house isn’t obligated to allow anyone into their home. It’s therefore not recommended as a first buy for a family.

If you’re in the market for a home, Diamond and Diamond will gladly assist you with a quote.

How Unpaid Property Tax Auctions Conducted

How Unpaid Property Tax Auctions Conducted

By the time a tax sale occurs, the homeowner’s property taxes would’ve been in arrears for some time already. After the sale, the homeowner is given a redemption period to settle their outstanding debt, including interest. If paid, the property reverts to the resident.

If the property owner fails to settle the debt, the property will be sold at auction.

The tax sale takes place either via a public auction or via a public tender. Many of these sales in Toronto are conducted using a tender.

Pre-registration is not a requirement at an auction. Participants are accommodated on a first-come, first-serve policy.  The bidding starts at the lowest price, called the ‘Upset price’. This is a total of one year’s outstanding taxes, the previous year’s arrears, and two years prior delinquent taxes, plus the interest and any penalties.

Bidding then increases, and the highest bidder becomes the owner.  

Tips for Bidding in Unpaid Tax Auctions

What to do 

What not to do

Research the property on auction beforehand.

Don’t trespass on the property.

If you’re paying with a debit card, prior arrangements need to be made with your bank to confirm your daily limit.

Don’t bid an amount you can’t afford to pay. 

Familiarise yourself with how the real estate auctions operate.

Don’t participate if you’re not clear with the procedures.

Buying a New House Checklist 

Check your budget to ensure you can afford to purchase a home.

Ensure you have a downpayment or save towards it.

Enlist a trustworthy real estate agent.

Get a pre-approval for your mortgage at a lender.

Start the search for your dream home.

Risks of Tax Lien Investing

Foreclosure risk

If you foreclose on a property before the lien expires and the owner settles their debt, you’ll lose the property.

Worthless Property

If the lien you have is for a property with environmental problems, the property becomes worthless. If the owner stops paying, you’re stuck with something that has no value.

Municipal Fines

If you’re unable to check up on the house and the resident doesn’t maintain it, you could be liable for municipal fines over time.


“While buying tax deeds can be a profitable investment, it can also be a risky one if not done properly. Therefore, you first have to figure out what the property is worth, what the maximum bid is, and if there are other liens.”

– Company Owner

Consult with a Toronto Real Estate Lawyer

Selling or buying property is a huge investment for many people in Toronto, elsewhere in Ontario, or Canada.

If you’re looking to invest in real estate, consult a local real estate lawyer.

Lawyers from Diamond and Diamond have an extensive background assisting families and businesses with various property purchases.

Dedicated and professional assistance is recommended to assist you with all the details of your transaction. An experienced Toronto real estate lawyer is available to help.

Unpaid Property Tax Auctions: A Safe Way to Invest FAQs

Is it possible to inspect a house at a tax sale?

No, this could be regarded as trespassing.

If I am the highest bidder in an unpaid property tax auction, when will I own the property?

If there’s a redemption period for the owner to settle the outstanding debt, you’d have to wait for this period to pass before taking ownership. If the owner pays the debt in full, you’ll be reimbursed what you’ve spent.

What are the risks of purchasing an unpaid property tax auction?

Foreclosure risks: Avoid the areas where the foreclosure rates and property values are depressed.

Municipal Fines and Costs: Avoid purchasing liens on a property that has a low assessment value. If the property isn’t well maintained the city could fine the property owner, resulting in extra costs.

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