# Clarification on "HBP" Tax Liens in Baltimore

2 Replies

I've been looking at tax liens in Baltimore, but don't quite understand the "HBP" - the "High Bid Premium".  Here's a quote from the FAQ:

"In Baltimore City the high-bid premium shall be 20% of the amount by which the highest bid exceeds the greater of a.) the lien amount; or b.) 40% of the property’s full cash value (note the full cash value is the assessed value). The High Bid Premium is to be paid on the date of the sale along with all taxes and other municipal liens, interest and penalties, and all costs incurred in the Tax Lien Certificate Sale.

Questions:

1. Is the "date of the sale" the date of the tax lien sale or the sale of the property (if the property owner defaults in paying their payments)?  As a concrete example, if the property is assessed at \$100,000, the lien is \$1,000, and I bid \$1,000 - and assuming I'm the only (and highest) bidder - what do I owe the city of baltimore when the auction closes?  \$1,000, or (40% * 20% = 8%) of the cash value of the house (\$100,000 * 0.08 = \$8000)?  If the latter, am I only making 18% on the \$1000 I've invested in the lein, and not the \$8000 that I've paid the state?

2. What % of properties can be acquired in the auction (not OTC) by offering just the lien amount by bidding?  Looking at the CSV from a previous year it looks like many of the occupied houses were acquired by the city, meaning that no one bid on them (?!)

The High bid premium is a complicated concept and formula.

The high bid premium only applies when you bid more than 40% of the assessed value. IF you bid more than 40% of the assessed value, you start paying High bid premium. You pay 20% of the amount of your bid that exceeds 40% of the assessed value.

The day of the sale you always give the city at least the amount of the taxes owed (lien amount) You also pay the high bid premium the day of the sale if there is one. The high bid premium does not earn interest. So the high bid will determine your effective interest rate.

Your bid at the auction determines three things

• The amount you pay for the house in the event you eventually foreclose
• The amount you pay the day of the sale

Few properties sell for just the lien amount. Many quality properties sell for 40-55% of the assessed value. The largest bidders bid the interest rate down to about 9-12%. They often bid so high that they don't make any money if they foreclose on the house. So much for the idea of  buying houses for "Pennies on the dollar"

However the bulk of my income does come from foreclosed tax sale properties. So yes you can make money in tax sale.

Hi @Ned - I've seen your posts on BPF and you definitely seem to be the expert on this corner of the market. Thanks for your quick and timely response!

I'm more interested in getting a high yield on my investment rather than obtaining the actual properties (although if they could be acquired this way that would also be great). 9-12% still seems good to me in comparison to other investments.

What % of your liens actually go into foreclosure?  I've heard that in other lien markets it's very, very rare to actually obtain property based on liens.

Is it important to have a lawyer before I bid or do I only need one once the land owner has defaulted on paying the back taxes?

I assume you invest in the baltimore lien market because you are from there + know the area / properties / neighborhoods. Are there other, better lien markets out there?

I took a look at the Florida lien market which seems to use the same software and it looks like things have been bid down to 0.25% for all non-vacant homes (mostly setup by a few LLCs by two of the big investment banks). Any idea why the same hasn't happened in Baltimore?

Have some crab dip with old bay on it for me (I miss it now that I'm not in Maryland!).