Mar
11

Are Online Tax Sales Too Competitive?

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It seems that when any county goes from having live tax sales to online tax sales there is a lot more bidding competition, sometimes making it not worth it to bid in those counties.

What happened recently in the Douglas County Nebraska tax sale is an example….

Nebraska has an interest rate of 14% and the interest is not bid down at the tax sale. What is bid down is the percent interest in the property. The lien is awarded to the investor willing to accept the lowest percent interest in the property should the lien not redeem and the investor foreclose on the property. Because this leads to sticky situations where the investor only owns a piece of the pie so to speak, and there is no real incentive for the owner of the property to redeem the lien, many NE counties use a random selection process instead of the bid down ownership method.

In the past tax sales for Douglas County all liens were awarded at 100% ownership, by random selection. When all the bidders bid 100% ownership, the bid is awarded randomly. But this year, the first time that Douglas county went online, some bids were awarded for as low as 1% ownership. And the bidders who won these liens were institutional buyers, not new investors that didn?t know any better. They bid 1% even in spite of a warning on the Douglas County tax sale web site not to bid under 100%. Here is the warning that was posted on their site:

“First Time Nebraska Tax Certificate Bidders – Mandatory Reading….”

“In all previous Douglas County tax certificate auctions, liens have been sold at one hundred percent ownership. Ownership of less than one hundred percent raises questions concerning title insurance and foreclosure rights. Be sure you know your rights before placing bids at less than one hundred percent ownership.”

The bottom line is that if you want double digit returns in Nebraska, or in the states that bid down the interest rate like Arizona and Florida, stay out of the online tax sales that make it too easy for all bidders to bid. If that leaves you out of tax lien investing because you don’t live in a tax lien investing state and you don’t want to spend the money to travel to lien state, then you do have a couple of alternatives. You can invest with a tax lien agent or a tax lien investing fund. You can even do it through your self directed IRA. These tax lien agents and fund managers are experienced investors that get great rates for their clients, better than you can get on your own. You may want to read the previous post Done For You Tax Lien Investing to find out more.