Auction

So You Think Auctions Sound Scary?

If You’re Prepared, You Need not fear

The individual states create laws that govern tax auctions. The local county or municipal governments then usually administer these laws. County Commissioners, Boards of Supervisor or Municipal Councils have a great deal of autonomy in administering auctions, making rules and establishing procedures.

Don’t worry that they make the whole process difficult for the layperson. It is in their own best interest to keep it simple. After all, they want things to function smoothly so they can get the revenues they need to fun the government. However, you should still prepare in advance so you know what to expect and what to do. The rules are local rules, and each locality may differ from others.

The authority that runs the show will prescribe the standard. That could be the Treasurer, the Sheriff, the Board of Commissioners, the Tax Assessor, or some other legal body that has received authority to tax, repossess and sell the properties for which taxes are not paid.

In reality, auctions are exciting

In some areas, the annual tax lien certificate sale is a high point of the year. Many people travel to get there. Investors from the frozen north love to travel to Phoenix for the February tax sale. The 16% annualized return on investment that Arizona pays draws them almost as much as the sun and warmth.

Although many localities will mail a complete list of all properties that are part of the auction, for your first time, you should travel to the auction site a few days ahead of time. You will want to take a look at the properties, talk to local title companies, get comparable sales reports to ascertain values, search public records for superior liens and evaluate the marketability of the repossessed property.

At the time you register for the auction, you may receive a bidder’s card or number. You will be asked to fill out an IRS form 1099. In some places, you must submit a deposit for the full amount you bid. In other areas, you need only your name and bidder’s number. Perhaps you will pay only a 10% deposit on your expected bids. Remember that it’s in the county government’s best interest to make it easy and businesslike for you.

So You Think Auctions Sound Scary?

If You’re Prepared, You Need Not Fear

In reality, auctions are exciting

Your Preparation for the Auction

Questions for the local tax authority

Before you attend tax sales, whether for certificates or for deeds, you will want to find out the ground rules. There are over 3100 separate counties in the U.S., and hundreds of separate municipal (township) taxing entities in certain Northeastern states. They all set their own rules. There are similarities in how things are done everywhere you go, but many differences, as well.

When gathering information from government employees, it is important to be respectful and friendly. Their job rarely gives them fulfillment or appreciation, so your appreciation of their help will go a long way. Remember, too, that if one person won’t help, you can find another who will. Generally the higher you go in the hierarchy, the more helpful people tend to become (how do you think they got promoted?).

You would like to know the answers to the following questions:

1. Who handles tax liens for the county (Treasurer, Sheriff, Tax Assessor)?

2. Does the county use tax lien certificates or tax deeds?

3. How often are tax sales held?

4. When is the next auction?

5. Where will the tax sale be held? (get the street address, building name, floor and room

number or

the Web site reference if it is online)

6. Where is public notice of tax liens posted (does the county publish a list, will it be published

in a newspaper)?

7. Does the auction take place in one day or over several days?

8. What method of payment is required?

9. Is it possible to buy tax liens through the mail?

10. If all the liens are not sold at auction, do you sell them daily over the counter?

11. How does the foreclosure proceed if the property owner fails to redeem the property?

a. Who pays for the foreclosure?

b. When can the foreclosure procedure begin?

c. Does the foreclosure go through a public auction?

d. Do all lien holders need to be notified before foreclosure?

e. What kind of deed is given in foreclosure?

f. Can this type of deed become eligible for title insurance?

g. Are all other liens removed from auction and sale?

12. What interest rate or penalty must be paid on a tax lien (this is your income)?

13. Can a person be put on a mailing list to get future notices of tax liens?

14. Are there tax liens available for purchase today?

15. At the tax lien sale, what are you bidding on? (In some states, you bid the interest rates

down, in others you bid the purchase price up, in a few you bid on the percentage of the

property that the lien applies to).

16. Is there a redemption period and how long is it?

17. Does the county have a Web site that shows property information recorded to

public record and/or property tax information?

18. Are there any pre-registration requirements for participating in the auction (e.g.,

some counties require a paid deposit, some require registration a week or more in

advance, others require no deposit or allow registration on the day of the

auciton).

Knowing how much to bid

Most often, you pay the amount of the delinquent tax plus fees, penalties and interest. You will recall that in many states, you will bid down the interest rate on the certificate. In other states, you bid the amount of the tax due, plus a bonus. The bonus funds go to the county. You don’t get that money back. In other words, the amount you pay affects the yield you get on your investment. It would not be good if you paid $10,832.00 for a lien, and a week later the property owner redeems the property by paying you $9,027.62. You just lost $1,804.38. Why? Because the 7 days of interest on $9,000.00 at 16% is $27.62, an excellent return compared to a bank, but not enough to offset the $1,832.00 you paid to county for the privilege of owning the lien. A more reasonable bonus to pay on such a “Buyer’s Bid” would be $11,000 for a $10,000 lien.

Just make sure you remember that the local government keeps the bonus dollars. That’s your fee for buying the lien. Make sure you don’t bid so much that you can’t get it back and more from the interest you earn.

Once at the auction site, look around the room. If it is packed with other bidders, more than there are certificates available, perhaps you want to find a less crowded jurisdiction. A lot of people gravitate to the cities because there are lots of properties there. On the other hand, few competing bidders and a lot of lien certificates provide a real opportunity to make money. You may not have to bid the interest down to get a certificate—especially if you are the only bidder. Or, you won’t have to be satisfied with a ¼% share of a certificate where you bid for a portion: you can get the whole thing.