Tax Lien Auction Just Like Regular Auction
We've all seen or heard of the traditional auction: the fast talking auctioneer, the pile of knickknacks, and the rapid fire sales. Well, in some cases, tax lien auctions are just like that. Still, they also have different rules and procedures that you need to get to know beforehand. Otherwise, you may not get that three-story beachfront home you are just dying to own.
The whole tax lien auction process was created as a means for government to get the tax revenue it needs to operate. At the auction, either a tax lien certificate is issued, or a tax deed.
With the certificate, the property owner can keep their real estate if they pay the taxes, plus interest, to the certificate holder. Otherwise, they lose the property. With the tax lien deed, ownership is transferred directly to a new owner.
The actual auction is usually held at the county courthouse, but some municipalities are now holding them online (the state of Arizona for one). First, a trustee explains the terms of the sales and how much time the buyers have to pay. In most cases, payment is right after the end of the auction, but a few municipalities now allow up to forty-eight hours. However, that is a privilege normally only extended to buyers who have been approved by the trustee before the auction starts. Generally, very little information about the properties is available at the auction. So, do your homework beforehand. In most cases, just a lot number is given and often the trustee does not even say if the lot is vacant or not, or the condition of the building. Next step: the actual sales. As previously stated, you're either bidding on a certificate or a deed. With the certificate, some auctions are what they call a "bid down." You bid as to what is the lowest interest rate you are willing to accept from the property owner in exchange for paying the tax bill. So, naturally, you don't want to go too low. After all, do the math: the lower the rate, the lower your profit. Now, of course, if the owner fails to pay the lien off by a certain date, you can foreclose and take the property. In some cases, there is no bidding. Properties are just listed and the first person willing to pay the tax bill gets the tax lien. The tax lien deed auction is more like the traditional type. Investors bid, and the highest bid takes ownership of the property then and there. On the plus side, ownership passes immediately and the new owner can renovate and/or sell the property as soon as they want. However, the downside to all this is the reduction in profit. After all, you're paying not just the taxes, but for the real estate. So, whether buying a tax lien certificate or deed, you are sure to get some kind of return, provided you do your homework. The only questions are the amount of return, and the timeframe involved.
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