Return on investment on Tax lein

[Jim Vora]

I did have a question about Tax leins:

Does the home owner has to pay interest on just the taxable amount that they ownedd to the county or do they have to pay interest on entire amount the bidder bid on the property tax lein?

eg:, if you bid 20K on an Tax lein on home that owes only 1000 in Taxes, does the owner pay you back

1) 20K + interst

2) 1K + interest

3) 19K + ( 1K + Interest on 1K)

[Ned Carey]

@Jim Vora

People ovebid for a variety or reasons. I some areas if you buy a lien for 0% you can buy the next lien due on the property at full regular interest. It is kind of like dollar cost averaging. In my area many attorneys buy liens, for the legal fees. They count on collecting a certain percentage of legal fees and some where they have bid to much that don't get redeemed they just walk. 

In most areas the home owner only pays interest on the taxes due not any overbid. However that can vary by state law and it is important to know the laws where you are bidding.

Generally when there is extra money paid at the day of the sale it does not earn interest and is an interest free loan to the county. In most instances that over payment applies the the amount paid for the house in the event of a foreclosure or gets returned to the bidder when the lien in redeemed.  However again this can vary tremendously by state. This is how it works in MD. If the property does not redeem and you do not take title to the property you forfeit the "High Bid Premium" as it is know in MD.  In MD that high bid premium does not apply to future taxes. Future taxes are the responsibility of the homeowner or the lien holder if they foreclose.

These are just  two reasons why you need to know the specific laws where you are investing.