Harford MD, bid 300% of Assess Value for liens. Insane?

7 Replies

Today I attended Maryland Harford county tax lien sale auction online.

As show in the screenshot above. Why people bid at 300% price of the assessed value for liens?

According to the county's rule, the 300% of assess value is the max price can bid.  So no one can outbid them.

Are they crazy?  What if owner won't redeem. Will they pay 300% for that property?

I don't understand their strategy.

Could you give me some hint?

(Another link for the picture above.)

@Bingji Wang the bidders are bidding for the interest. They are assuming that the owner will redeem. If the owner does not redeem, they will simply walk away from their bid. They simply figure in a number of walk aways, into their financial calculations. 

Notice that the assessments of the properties with the 300% bids are in the many hundreds of thousands of dollars. Nobody is going to risk losing that nice a property for a few thousand in taxes. Now if those people understood how the game worked they could stick it to the tax lien holder. 

@Ned Carey

For example: A property assess value is $ 100,000.    Market value is $ 150,000.  

Delinquent Tax is $ 2000.  Bid at 300% equals $ 300,000.  

The owner knows someone bid at $ 300,000.  The owner do not redeem purposely.  

So the tax lien investor have to

1). Don't forclose, then he loss $ 2000 , the TaxLienCertificate goes expired.  The owner save $ 2000 tax. 

2). Go do the forclosure.  He have to pay $ 300,000 for a property market value at $ 150,000.  If he pay, the owner get $ 300,000.

@Bingji Wang yes that is basically correct.

Two small technical corrections. The owner would get 298,000. Two thousand of the bid price went to pay the back taxes.

Also the bidder pays the county. The owner or mortgage holder then makes a claim to the county to get the $298,00 surplus bid. 

@Ned Carey , how could the homeowner stick it to the lien certificate holder? I thought about going after some liens to collect the interest payment hoping the owner would redeem. I did come across articles that offered advice to those that lose property in tax sales to get them back. 

Wasn’t comfortable enough to pull the trigger, so looking to understand ins and outs for next year. 

@Tyrone Hansboro if you house is worth $100,000 and I bid $300,000 for it. If you don't pay me back the taxes owed, I have to pay you $300k for your $100K  house in order to take your house.  No tax lien bidder is going to pay 3 times what a house is worth.

So I have paid the taxes for you and there are essentially no consequences if you don't pay me back.  Does that help make it clear?

The solution is simply. Don't bid too high.  I would rather place 100 bids that don't win than to win 1 bid where I pay too much. 

@Ned Carey

Why wouldn’t more home owners be willing to do this? There has to be a missing component.

Anytime someone bids 300% the value of your house why would anyone redeem? Let them pay the taxes and there is no chance they will try to take the property if you don’t redeem. If by some chance they did take the property who wouldn’t be happy with 3x the value of their home? Especially if it’s rental property with no emotional attachment.

There has to be a reason home owners aren’t doing this... If you don’t redeem, even if they don’t start a suit to take ownership, would there be a cloud on the title till the tax sale is cancelled (paid)?

There has to be a reason that lots of home owners aren’t sticking it to the 200-300% bidders. It would be too lucrative not to.

@Will Sifert yes there is a very good reason: ignorance.

I am sure some have a fear that it is "too good to be true".  However there are some investors who habitually pair their taxes late to see how high an tax lien buyer bids.

I helped out someone I met here on BP to understand that he could walk and claim the bid balance. That is exactly what he did. It was a much lower priced property and the bid wasn't 300%. But it was high enough for him to just walk and collect the bid surplus.