Transcript:
Welcome to our tax sale start series where we’ll take one specific topic and explain it to you in less than two minutes!

Today:
Alright, tax lien bidding systems. This will be tough to capture in less than two minutes but I’ll do my best so bear with me.

So on a tax lien we know that we buy a lien, then earn interest on that money if it’s redeemed. If it’s not redeemed during the redemption window, then we foreclose our lien and become the owner. So . . . back to that interest rate, how does that work being that it’s typically a competitive process? Well, here are a few different manners. It’s of note that the lien sales themselves can be held online or in person and that each state varies, but here are a few of the ways liens are sold.

Alright, first up we have a interest bid down. The amount you pay for the lien is the back due taxes. The interest rate starts at the maximum allowable rate and whoever accepts the lowest return wins. Florida for example starts at 18%, but if someone bids 10% and no one bids lower, then the 10% bidder buys the lien and earns 10%.

The next method is an overbid or premium method. This is where the interest rate always stays the same – maybe it’s 12% a year for example, that doesn’t change. What changes is the amount paid for the lien. So a lien with a worth or a face value of $100 will start at $100. Then someone bids $101, 102 and on and on. Whoever is wiling to pay the most wins that lien. In many states the excess, the amount above face value, does not earn interest and is not returned upon redemption, so you need to make sure your calculations are accurate and align with your strategy so you don’t bid more than you’d earn in interest. In a few states, overbids do earn interest or are returned.

And lastly, we have a roundrobin or lottery type system where they announce the property, select a bidder number and ask that person if they want the property or not.

And there are a couple of other methods, but the majority of lien sales fit into one of the categories we just discussed.

Hope this helps!