Tax
Lien Bidding Systems
Every
state uses a particular system from a group of tax lien
bidding systems. Some counties have a set bidding system
they must follow, and others are allowed to chooses whichever
system they want. It's important to know which tax lien
bidding systems are being used in your county or the county
you are bidding in. Even more important is to know how each
bidding system works so there are no surprises when you're
attempting to invest your money.
Bid
down the interest - The state sets a maximum interest
rate that can be earned. Bidding starts at that interest
rate. And investors literally "bid down the interest".
Basically, a bid is whatever minimum percentage an investor
is willing to earn on a certain investment. Thus you'll
find that investors are willing to go lower on more reputable
properties that are not only more likely to pay off, but
also more likely to pay off quickly. Some states offer a
minimum percentage return no matter how low the bid goes.
For instance, if the minimum is 5% like in Florida, you
can bid down the interest to 1/4 of 1% and still earn a
state mandated minimum of 5%. This is obviously to the bidder's
advantage as it allows you to bid very low and still clear
a higher percentage.
Bid
down the ownership - This one is also surprisingly
self explanatory. Investors bid down how much of the property
the lien is good for. What this means is that if the property
eventually goes default you can only foreclose on that percentage
of the house which the lien was good for, which is almost
impossible to enforce depending on the percentage of the
house owned. This is not a preferable system.
Premium
Bid - In a premium bid tax lien bidding system
the county awards the lien to the investor who bids the
highest amount over the lien amount. There are five basic
ways in which a county may pay out the winning lien holder
if the tax lien is redeemed.
Random
Selection - The county official randomly selects
a bidder number and asks if that investor wants the current
lien up for sales. If that bidder declines they will then
select another number. If no one takes the lien in successive
tries they will offer the lien to anyone interested. Methods
of random selection will depend on the budget of the county
and the number of bidders. Many counties may switch to this
method if they fall behind in sales and need to finish off
a high number of tax liens before the auction must end.
Rotational
Bidding - Each investor receives the same number
of chances to purchase a lien. The county official goes down
the list of bidders in order, starting from number one, asking
each if they would like to purchase the current lien, until
a bidder says yes. The next lien is then offered to the next
bidder on the list, regardless of how many bidders they had
to go through before someone bought the lien. Again, you do
not lose a turn for declining to purchase a lien that didn't
start with you. This system may hurt you in the short run
if you are offered a lien you can't afford, or one not worth
purchasing, but in the long run it is the most fair way to
do it.
Over
the counter - Some states and counties will allow
over the counter purchases after the sales has concluded.
Any lien in inventory which was not purchased, can be. You
will also receive the maximum allowed interest rate on the
tax lien certificate.
|
