The Iowa tax sales are held in June of every year, most of them on the same day. But this was the first year that any of the Iowa counties had online tax sales. Dubuque, Jones, Monona, Muscatine, Taylor, Warren, and Wayne counties conducted their tax lien online for the first time this year. But there is something different about the Iowa tax sales. Iowa used to be a popular state for tax lien investing, due to the tax sale procedure in some of the counties and the high rate of return.
The interest rate in Iowa is a whopping 24% per year – or 2% per month. And the interest rate is not bid down at the tax sale, nor is the price of the lien bid up. It used to be in some counties that you register for the tax sale and get a bidding number. The winning bidders were randomly chosen among those who bid on each lien. But the law in Iowa accounts for bidding down of the ownership interest should the lien not redeem and the lien-holder foreclose on the property. In the online tax sales, that is what is bid and it’s frequently bid down to only 1%.
This is very similar to the way it works in Nebraska. Douglas county Nebraska has conducted its tax sales online for a couple of years now. Before the tax sale was conducted online, most liens were won at 100% interest ownership. But after Douglas County started conducting its tax sale online, most of the good liens are now won at 1% ownership. It seems that the same thing has happened in Iowa.
In the seven counties that had online tax sales, most of the liens were sold at 1% ownership interest. The exception to this was in Taylor County, where only 25% of the liens sold at 1% and more than half of them were won at 100% ownership interest. Wayne County was the other extreme where out of 223 liens that were sold, only 4 went at 100% and the rest all were sold at 1% ownership interest. Less than 2% of the liens sold in Wayne County went for anything other than 1% interest ownership. You’ll find the results of how many liens were sold in each of these counties and at what percent of ownership interest, summarized in the table below:
| County | # of Liens Sold | 1% ownership | 100% ownership | 8-99% ownership |
| Dubuque | 401 | 358 | 14 | 29 |
| Jones | 123 | 108 | 9 | 6 |
| Monona | 84 | 81 | 2 | 1 (all at 98%) |
| Muscatine | 280 | 231 | 17 | 32 |
| Taylor | 51 | 13 | 30 | 8 (50-99%) |
| Warren | 348 | 313 | 21 | 14 |
| Wayne | 223 | 219 | 4 | 0 |
So is it worth it to bid 1% ownership interest on a property? Only if the property redeems and you get paid! If the property doesn’t redeem and you file for a Treasurer’s Deed, you would receive a 1% undivided interest in the property. You would then have to go to court to resolve the issue of the 1% undivided interest. The question is what are you going to do with only 1% or anything other than 100% ownership of the property?
Bidders bid 1% when they think they know that the property will redeem. You can be pretty certain that the lien will redeem if the property is valuable and there is a mortgage on the property. Odds are that the bank is not going to let property go for back taxes. If investors think they have a chance of owning the property, especially when bidding on property owned by out of state owners without a mortgage or loan and on land, then they will (or should) bid 100% ownership interest or something close to that. But even having 99% ownership interest in a property can be a problem. You can’t sell the property or get a loan on it without have the other owner sign off.
I don’t personally invest in Iowa, so if anyone has experience with these tax sales in Iowa and has some insight into these investing strategies feel free to leave a comment. I don’t profess to be an expert at tax lien investing everywhere in the country. Quite frankly I think that anyone who does it not really telling the truth.
Investing in tax liens is so different in each state that one person couldn’t possibly be an expert in every state. It’s like playing 3 sports in college, usually by the time a young person gets to college they need to pick only only sport, it’s hard to master just one unless you train for that one sport all year. Even in High School, most kids can play more than one sport but they won’t really be excellent at any of them.
If you want to find out about all the counties that have online tax sales, where and when they are, and how the tax sales are conducted – plus get training on how to register, do due diligence and bid at these tax sales, then check out the Buying Tax Liens Online course at www.BuyingTaxLiensOnline.com/main.html.
By Hudson June 26, 2013 - 10:11 pm
Joanne and Kate,
Full disclosure I have subscribed in the past to Joanne’s site and enjoy it. I also currently invest through Kate’s fund. I recommend working with both, they are great and professional. That said my opinion below is my own.
I have invested on my own in Iowa tax liens for several years and think depending on the county they can be a nice part of a person’s overall fiscal portfolio. In recent years bidding down at in person auctions has become more common, but not overly so. In fact sometimes you can hear the groans in the room when a person insists on bidding down; they groan because they will still take the parcel, but they know their risk just went up. This year I participated in online auctions for two of the smaller Iowa counties as well as two sales in person. I did not like the online format for several reasons, two of which I’ll go into more detail on.
The first has been pointed out already; everything that was worth investing in went to 1%. Kate is exactly right – for a large bank or private equity group it represents such a small portion of overall investment the risk-to-reward ratio is tolerable. In fact if they were worried about the process of acquiring the deed they could simply walk away from the lien and let it expire without the outlay of going through a potential legal mess. For a relatively small investor like myself I cannot afford to accept that risk except for a few very specific and heavily researched parcels in counties with which I’m familiar.
The second reason I’m not a fan of the online format is that it increases the number of bidders at in person auctions and reduces my odds of acquiring liens. How so? I attended two sales that were near one of the counties listed above. Each county had an ~50% increase in bidders. When I asked the bidders, who were all acting as agents for a single firm, they explained that in the past they had been deployed to one of the now online counties, but since the investment firm could do everything online they just sent them to the county I as attending. It cost that firm no more money and they got more coverage, a huge win for them. So not only is online difficult to swallow because of the increased risk with no increased reward, I now have to fight more at in person auctions to get the same amount of dollars invested.
A final note, and I don’t like to say it but I know it’s true. Online auctions in Iowa will become a lot more common. If I’m the county treasurer online auctions represent a way for me to reduce my workload at a reasonable cost. If it makes their life easier they will share this information with other treasurers and it will become more common. So for those who have invested in Iowa in the past they can be frustrated by this or continue to expand their knowledge by studying Illinois, Nebraska, Indiana, or approach reputable funds like Comian and step away if that is in their best interest. Like in nearly all cases fighting the change gains you little, accepting it and figuring out how to profit from it is a far better strategy.
Happy investing!
By Kate Dougherty-Jones June 26, 2013 - 11:15 am
Joanne,
I think you hit the nail on the head with this one! I was reviewing these results yesterday and was dumbfounded (and also glad we didn’t participate as a few of the IA counties had been researched for approval by my team). In my opinion anything but 100% is asking for a huge legal mess!! It seems now most people are ok with assuming some risk for such a high return, and if you have deep pockets and the historical 90%+ of liens pay off then it’s still a win for the portfolio as a whole, however, the little guys better really beware bidding anything but 100%. One bad lien could lead to a legal nightmare many aren’t equipped to handle not to mention drag down total net returns on their portfolio significantly!