I attended the Shelby County tax lien auction on April 2. It was the first one in the state under the new procedure. This year, the following counties will have similar tax lien auctions instead of the traditional tax certificate auctions: Baldwin, Calhoun, Cherokee, Cullman, DeKalb and Elmore. Next year there might be a lot more. There were more tax officials in attendance, observing, than bidders!
If the taxpayer does not redeem within 3 years, the investor can foreclose the lien and get clean title. This is not like a tax deed, with possible continuing redemption rights. Once the investor forecloses on the tax lien, it's all over for the former owner. The investor can get title insurance and sell with a warranty deed.
Here is my report from Shelby County. This was for tax liens only, bidding down the interest rate from 12% downward in 1% increments. If there was a bidding tie, they had a drawing to see who won the bid.
Approximately 30 people registered to vote. There were 20 active bidders. None of the institutional investors were present. As you can see from the numbers below, the volume was not large enough for them to spend the money they need to spend. This is GREAT news for local investors.
278 properties were on the sale list with a total due of $269,320.80 Six people paid their taxes the day of the auction (total $6,750.91) Thirty-one property liens had no bidders and went to the county (total $9,477.17)
Of the remaining properties, winning interest rate bids were as follows. No, I don't know why anyone would bid 0% interest, unless they were fairly certain they were going to be able to foreclose on the real estate. Some of the 0% properties had multiple people at that rate.
|Interest Rate %||# of Properties||Total $ Volume|
One bidder spent $76,687.98 on 46 properties.
Another spent $68,613.40 on 27 properties.
The next largest buyer spent $23,973.11, and the one after that spent $22,592.39
I’m in Calhoun County. Reading this is intriguing and makes me want to look into this and learn more about it. Thank you for the information.
@Tom Clay , you are welcome!
Good info. Thanks.
Three years is a long time. Illinois is this way. Be cautious! Much can happen to a property in three years taking it from profitable to worthless.
@Denise Evans Thanks for posting. It's tough to get that type of information from a live bid auction! Did they provide a file with the winning bids at the end or did you have to jot it all down?
I invest in Arizona tax liens that have the auctions online. They provide a file with winning bids, winner's name etc. I then go back and get all the bids that were placed and at what interest rate so I can determine which liens had the most bids, what type of property, etc. It gives me information on who the bidders are, what they bid, what types of properties, all to help me in the next year auction.
People bidding zero percent - I've done it a couple of times. Only when I knew the owners were deceased and the property was decent. Both times I won the lien, the properties were eventually sold before the lien redemption period came up. I received my initial investment back, but no interest. Strictly a roll of the dice and I rarely do it.
In the online auctions if you have the lowest interest rate bid but the next lowest bid above yours is several percentage points higher, the software awards you the interest rate right below the next lowest bid. For example, if you bid 3% (lowest bid of anybody) and the next lowest bid was 8%, you would actually get 7% interest. The bidding is blind and you put in the lowest interest you would accept. The bidding for hundreds of liens all end at the same time so you don't know if you won any until the bidding time ends.
I know some investors who bid 1% on some liens knowing there would be people bidding 0% expecting to get a higher rate. The 0% bidders may be surprised to find somebody bid 1% which means they actually will get the lien at 0%. You win with 0% a couple of times and you stop bidding 0%.
However, in Florida, you can bid down to 0% in 1/4% increments. If you bid 0% and win, then you actually get 0% interest. If you bid 0.25% interest (or higher) and win, then you get a minimum penalty rate of 5% interest when it is redeemed. So many institutions automatically bid 0.25% interest on everything knowing they will get the 5% rate if they win.
@Jerry K. , I was at the auction, took notes, and then transferred it all to a spreadsheet. The information is not publicly available.
I was familiar with the Florida model at one time, but had not revisited it in several years. Thank you for explaining about different states. That will all go into my "general info" file in my brain. Nothing is ever wasted!
Alabama counties are thinking about online auctions, but the infrastructure is expensive. For small counties, it might not be worth the expense. Also, it is not practical to introduce sweeping legislative changes all in one year. I think that for the 2018 legislative session, the issues of the overbids and the preservation improvements inherent in the current system were a top priority. Just crystal ball gazing, but I don't think we will see legislation passed for online auctions for maybe 3 or 4 years. Many counties were present as observers at the Shelby County lien auction. I see other counties implementing that change next year. After a couple of years of experience doing that, then I think they will start looking towards online auctions.
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