Tax Lien Auctions are just similar to traditional auctions. It has a very unique characteristic that should be observed and studied before effectively becoming an active bidder at one. Counties often have rules and regulations regarding the types of sales and foreclosure, which need to reviewed before bidding in a tax lien auction, this is to ensure that bidders walk away with the property they want & understand their rights in purchasing the lien.
Tax lien auctions are premeditated to allow taxing authorities to earn back lost tax revenue by selling either tax lien certificates (which pays the government all back taxes, but allows the land owner more time to raise the needed cash before permanently losing their property), or selling the property absolutely and transferring the deed to a new owner.
At the auction or the courthouse or the assessor’s office, a referee or trustee controls the proceedings by first explaining the sale terms and required deposits. Most county oblige payment immediately after a sale, but allow 48 hours for payment, if the buyer has been approved by the trustee beforehand.
There is usually only minimal information given out on the properties at tax lien auctions. That is why it is important for you do thoroughly research the properties, there locations, conditions, etc. before the auction day arrives. Knowing the properties well before the auction will allow you to place better bids.
The types of auction sales are: the tax lien certificate sale and the tax deed sale. Both are exclusive and need to be considered carefully before placing the first bid.
What happens in the auction of a tax lien certificate is that the investor is given the rights to lend the homeowner the money to pay outstanding tax debt, if he wins the bid of the lien, which is auctioned. In the event the property owner fails to pay the lien certificate and interest in full by a pre-determined date, the investor assumes ownership rights to the property for just the amount of taxes paid.
Tax Lien bidding varies from a standard auction rules in the fact that possible buyers “bid down” or bid on the lowest interest rate they are willing to accept for laying out the cash for the taxes. The lower the interest rate accepted, however, can drastically reduce any potential profit, should the current owner finds the funds necessary to pay the lien certificate in time and regain ownership of the property.
Investing and participating at a tax lien auction basically guarantees some amount of profit for the investor by means of interest rates, while tax deed sales offer the opportunity to resell a promising property for a profit. Regardless of the type of bidding process used, investors have more opportunity for profit at Tax Delinquent Investment properties since they can usually obtain them at deep discounts whether through Tax Deeds or Tax Liens.
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