My recent Tax Lien Auction experience in Tennessee - lost, but got an education

5 Replies

I went to my first ever tax lien auction on May 20, in Franklin County, Tennessee (my home county).  TN is a "hybrid" state -- if you win the auction, you get a first lien on the property, and if it's not redeemed withing a year (all the past due taxes are paid in full) you automatically get a deed to the property.  In 2015, the county was auctioning liens for overdue 2007 and 2008 county and city taxes, so all the available properties had at least 7 years of accumulated taxes.

I had so many questions before the auction.  Apparently, because this was auctioning taxes not paid in the first years prior to the financial crisis, there were more properties on the block than ever before in Franklin County - over 40.  It started off with the county attorney doing the first listing so it was slow. After that one (which no one wanted), a county sheriff, who's also a professional auctioneer, took over.  It got more hectic.

The properties were listed alphabetically by owner, so sadly for me, the one I really really really wanted was second on the list.  Before it started, I had no idea whether this property would be hotly contested or whether I'd be the only one interested.  Turns out, there were 3 other parties bidding against me.  I'd decided in advance my maximum bid (figuring the taxes owed, the value of the lot and the cost of scraping the existing house if it came to that).  I ended up bidding over my max bid, then dropping out to a very enthusiastic bidder I was kind of scared of.  We were the two left in the bidding, and he won.  Final bid was $5,500, and I figure the total taxes owed are around $5,000 including court fees and interest.

I'm kicking myself because, in hindsight, I see I didn't completely understand the process. As I understand it now, the winning bid pays the current taxes & interest due, and if the lien isn't redeemed by the owner in a year, any amount bid over the amount due rolls toward the future year taxes.  I thought my bid would be 2007-2008 taxes only, and the additional years would be the price of winning. What I think I understand now is that, for instance,, if the taxes due for the bid year are $500 and you win at $5000,  the extra $4500 is essentially pre-paid 2009-2013 taxes for when you get the deed. 

If the winning bid is over the total amount of accumulated taxes, interest and fees, you're all paid up and the rest is gone bye-bye.

The guy that beat me got the lot and the little old country farmhouse for the total of taxes due 2008-2013 -- his winning bid covered it all.  The point here is, because I thought my bid would only go toward 2007-2008 (and not subsequent years), I calculated my maximum bid way too low.

I'd been trying to contact the owners (out of state, inherited the house, in financial difficulty themselves) in vain since September 2014, so I am almost 100% sure that they will not redeem the tax lien, or even know it's been sold.  I was prepared to offer $15,000-$$20,000 to buy it outright.  If I'd understood that a $5,500 bid included ALL the back taxes, I could and would have gone much higher in the bidding.  

Theoretically, I could still have a chance at the property.  I could offer to buy the lien from the winner, making him a quick profit (but I suspect he wants the property more than a profit. He's already put a tarp over the leaking roof -- exactly what I planned to do, except I would have done it in brown instead of totally obvious blue).  

Or, I could swipe it out from under him. I have a year to continue to try contacting the owner for a purchase -- I could even get myself to Ohio and knock on their door and force the issue!  If I could do that, I might get the property for what I'd originally intended, plus the owners would get some badly needed money instead of a big fat NOTHING by losing it in the auction.  

I'm still trying to decide whether this is a dumb or smart move -- maybe the fates are trying to tell me I'm overextended right now and better deals might come along soon???

In probably a dumb move, I stayed after this property was auctioned and bid on another, a small lot next to a dentist's office and across from the railroad tracks in TinyTown, TN.  I bid, and won the lot, for maybe a bit over the total amount of the taxes due.  I'd researched it beforehand and driven past it the morning before the auction. It's tiny, but at least the burned down house on it has been scraped and it's an empty lot.  Taxes $69/year, so not too much of a burden.

Tips for auctions that I didn't know before -- 1) sit in the back, so you can see who's bidding against you. 2) try to get an understanding of how the payments are applied (I could have done this, but I had no idea what I didn't know, so I didn't know to find out -- ya' know??), 3) go to an auction in advance of one you want to bid in (I didn't have the chance, since Franklin County only does this once a year, and 4) pray the properties you want are at the end of the list so you have time to get your bearings before it really matters!!

So, I bid, I lost, I learned, I have a teeny lot in Cowan, TN.  Anybody want to build an office building next to Dr. Elkins the Dentist??

@Anna Watkins

Thank you for posting this valuable info. & congratulates on your winning.

I enjoyed reading your experience. I have never been to TN or attend any of their auctions. There are just too many counties & rules to learn from each. Since Franklin is your home county, you probably know the area very well. You may want to check out OTC. TN offer OTC, it's extremely benefit to locals that knows the area well. Hope this helps.

@Anna Watkins

We lost as well... but consider the price of the education you learned from your experience. Now you're a pro!

@Anna Watkins Thanks for sharing.  As @Tom Yung mentioned, the statutes/rules for all the states/counties are crazy to learn. I've looked at TN briefly in the past and I didn't dig deep enough to see how the bids are applied to the other outstanding taxes. Franklin is such a growing county - I know many people who are planning their escape from Illinois financial and political mess and Tims Ford Lake area is popular for housing value and better weather than northern IL.

When the time comes and you're past the redemption period on your lot, offer it to the property owners next door and other owners on the street.  You'll probably find a buyer quickly on your own that way.

@Jerry K. - Hmm, I never really thought of "foreigners" from Chicago choosing to move to Franklin County, TN!  But between Tims Ford on one end, Nissan in the middle and Sewanee on the other end, maybe I should investigate even more deeply.  I certainly saw some professionals at the tax auction. Thanks!

Congrats on getting out there!  I attend tax auctions all over Texas and every one is different; professional auctioneers at some, constable reading a script at others, etc.  Main thing is get out there and do something. 

Local knowledge is important.  I've seen people bid after admitting they've never even seen the property but 'did look it up on Google'.  LOL

Go - learn - progress - invest -repeat!



Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here