The majority of tax sales occur by way of auction. The county siezes the property for delinquent taxes and prepares a list of
those properties to be auctioned. Investors obtained copies of the sales lists, conduct research on interesting properties and
complete any pre-registrations work such as tax forms and obtaining financing (especially important with tax deeds).
For tax
liens there are several different bidding systems in use: 1) Bid Down the Interest, 2) Premium Bid, 3) Random Selection, 4) Rotational
Bidding, 5) Bid Down the Ownership or 6) Over-the-Counter.
For a Bid Down the Interest sale, the interest rate starts at the
maximum rate allowed by the state/county. Investors make bids with the winner being the lowest interest bid. This method
benefits the property owner.
In a premium bid, the winning bid is the largest amount over the owed property taxes. In some
cases both the premium and the lien amount receive the same interest/penalty while in others it does not. Check carefully in
the county/state you are investing in to determine how it will work for you. This system is best for the investor.
During a random selection the investors are chosen by lot, sequentially or via some other system and given the opportunity to purchase
the lien with no pressure from other investors. Similar to the random process is the sequential or rotational bidding process
where the investors are asked sequentially if they would like to purchase a specific lien. For those new to the game or leery
of bidding, this method is for you.
Bid down the ownership process allows the investor to determine what fractional part of the
property the lien will encumber. Not a good system.
The last system occurs after the auction is over. In an over-the-counter
system an investor can purchase liens directly from the tax assessors office for the full lien amount and interest rate. In
every sale there are usually a few properties that go unsold or properties that were purchased during the sale but the investors'
financing fell through. These can be purchased directly from the tax assessor's office.
