What happens at the tax sale depends on what state you attend a sale in, and on whether it is a tax lien sale or a tax deed sale. Tax lien sales can be very different from state to state or even from county to county within a state. Tax deed sales are pretty much the same around the country. At tax deed sales the properties are read off by the auctioneer in the order that they are listed and the price of the property is bid up. The exception to this is in counties that have online deed sales, like some counties in California and Florida. In order to bid at an online auction, you have to register online and put up a deposit. The properties are usually listed in batches and a time frame is given for each batch. You put bids in on the properties that you want to bid on, but you don’t know who else is bidding and what the other bids are. You may not even know if you are the successful bidder on a property until after the sale.
Click on the arrow below to listen to the entire podcast episode? or right click on the blue link and save it to your computer.
Tax lien sales can differ greatly from state to state. In some states the interest rate is bid down. This happens in Florida, Arizona, (two of the most popular tax lien states) Illinois, and in Nassau County, NY. In other states the interest rate is kept constant and the price of the lien is bid up. The amount bid up from the amount due is referred to as “over-bid” or “premium” and each state handles it a little differently. In some states you receive interest on the premium paid for tax liens (Alabama and Indiana are two state that give you interest on your premium), and in other states you do not (West Virginia is one of these states). Some states do not pay interest on the premium amount and do not return the premium to the investor should the lien redeem (Colorado and Vermont are two of these states). New Jersey is the only state where the interest rate can be bid down to zero and then premium is bid. You don’t receive any interest on the premium paid, but you do receive your premium back if the lien is redeemed within five years
In some states, something entirely different than the interest rate or the premium is bid. In these states, what is bid down is the percent ownership interest in the property should the lien be foreclosed. The tax lien certificate is awarded to the bidder willing to accept the lowest percent ownership interest in the property. As you can imagine, this makes for some sticky situations should you have to foreclose on a lien and is not the ideal situation for the investor. Tax sales are conducted in this way in Rhode Island, Nebraska, Louisiana, and Iowa.
Some states will use a random selection or round robin process to award tax lien certificates at the tax sale. With the random selection process, the tax collector or auctioneer randomly selects bidders, usually by bidder number for each parcel as it is read out at the sale. With the round robin procedure, the tax collector will go around the room, offering the next parcel on the list to the next bidder in line. The downfall to both of these procedures is that you cannot pick which properties you want to bid on and only do your due diligence on those properties. Here you do not know which properties will be offered to you and you can only accept or decline the ones that are offered to you. The random selection process is used in Wyoming and in Oklahoma. The round robin procedure is used in some counties in Colorado for liens under a certain amount (the amount differs by county).
One tax lien state does something entirely different than any other, and that is the Commonwealth of Kentucky. In Kentucky, nothing is bid, or randomly selected. There is no auction. They accept bids for the amount due plus costs by mail, e-mail, fax, and in person, and the first bid to be received is awarded the tax lien. Although you can mail or fax your bid in, you have to be present at the “sale” to be awarded the tax lien certificate.
If you need help finding the best place for you to invest in tax lien certificates or tax deeds, you may want to take advantage of my Jet Start Consulting Call. My Jet Start call is a one-on-one coaching session with me for only $197. I’ll help you get what you need to build your own profitable tax lien or tax deed portfolio. Find out more at
http://taxlienlady.com/consulting.
Happy and Prosperous Investing,
Joanne
By jmusa December 8, 2007 - 1:44 am
David,
Forgive me for not getting back to you regarding the comment that you left on my blog back in August. There were 2 comments that I missed and yours was one of them. I just noticed your comment today and wanted to answer your question about redemption of tax lien properties. The truth is that in most states at least 99% of tax liens will redeem. The value of the property isn’t really an issue if there is a livable building on the property. Properties that don’t redeem are usually vacant land. The percentage is a little lower in redeemable deed states, there you have a better chance of the property not redeeming, because these properties typically get bid up higher, and the penalties can be 20% or more depending on the state, they not as easy to redeem.
Happy and Prosperous Investing,
Joanne
By jmusa December 8, 2007 - 1:32 am
Charlene
I do apologize for not seeing your comment that you left on my blog back in August. I thought that I was supposed to get automatic notification when someone leaves a message, but I guess that is not the case. Anyway to answer your question, tax deed investing has been very competitive in California and yes, people do over pay for tax deeds, especially for land. It’s imperative to do your due diligence on tax sale properties before you bid. I’m sorry that you were taken by John Beck’s program and didn’t get what you were expecting. I have a few people from California go through my 8-week course (which is a fraction of the price of John Beck’s). My next course begins in January and I have a couple of free preview teleseminars coming up this month (December). Check the Events page of my site at http://www.taxlienlady.com for details.
Happy and Prosperous Investing,
Joanne Musa
By David Smith August 15, 2007 - 11:26 am
I am in the process of gaining better control of my time. I am grateful for your information on both tax deed and tax lien sales. I am intrigued by the investment opportunities I perceive in this business.
I have not had adequate time to pursue aquiring and studying more information from you about this opportunity. Of course, every investment venture has the possibility of experiencing a downside. As I understand your information, perhaps the biggest possible downside to this investing is lack of “due diligence”.
In the interest of the better use of my time it would help me decide if this is a profitable line of knowledge for me to obtain if you can tell me if there are statistics that show that the likelihood of redemption is related to the value of the property?
I thank you in advance!
By Charlene August 6, 2007 - 3:46 pm
Is it normal to pay twice of what a property is worth at an on-line tax deed sale for defaulted tax payments? I have attempted to purchase in Northern California several times in the past 6 months. In the last sale, I tried to buy property which was listed under the estate of a party. (It was 5 acres, worth only $5,000, but it sold for $10,100. There were no utilities although it was about 10-15 miles from a neighberhood. The zoning dept. was not sure about the growth, because they would need a new sewage facility to meet any new housing needs) Did the winning bidder overpay or is this necessary in a competitive area? Do you have any information dealing with this? ( Please note that in the past I was taken in a scam by paying thousands for tax lien/deed coaching through the John Beck company. so if you could just comment, I would really appreciate it.)