what does this mean?

13 Replies

I found a list of liens, but I dont think I understand all of it... what exactly does HBP mean? I gussed that it is the premium since it seems to be about that much... Also does 'assesment' mean what the property is worth? and is "sale price" the amount of taxes owed? is that what they start bidding at?

Originally posted by "tash":
I found a list of liens, but I dont think I understand all of it... what exactly does HBP mean? I gussed that it is the premium since it seems to be about that much... Also does 'assesment' mean what the property is worth? and is "sale price" the amount of taxes owed? is that what they start bidding at?

I am guessing you found a lien auction list? Either way...

HBP-Home Buyers Premium. This is to cover the fees for the sale process
Assessment may be a true appraisal, but more likely what the county assessed the properties value in Jan of 06 or less likely Jan 07.
Sales Price is likely the starting bid in an auction or whatever the lien holder is asking for the property if not an auction.

yes, a lien auction list.

Thank you, thats what I thought, I just wanted to make sure :)

one of them has the assesment at over 5 million, the sales price is only about $300 and the HBP is a little over $2000.... does that mean that there is a property that could potentially be purchased for less then $3000 that is worth over 5 mil? (I know it will probably go up, but still....)

That is what it sounds like.

Some idiot didn't pay his taxes and now because they didn't pay a little $300 bill, there house is going up for auction...

seriously? I feel like I am missing the catch somewhere.... I have found sevral like that, one that is $700 starting price for and 11 mil commercial property. another 2 mil for 600 or so... this is nuts.

I dont entirely get primium though. One site said that you bid and up to 40% of the assesment basicly doesnt count (at least thats my interpritation). so if its a 100,000 assesment and you bid 35,000 then you still only pay the sales price of $1000. that just doesnt make sence... whats the point of bidding? or does it useually just start at the 40,000 and skip 20,000, 30,000 etc? and then if you pay a % of the premium then do you have to pay the rest of the premium that you bid later? like if you bid 50,000 on the above example, it says you pay $2000 on the premium (20%), then do you have to pay the other 8,000 at some point? or is it just the $2000? I just feel like I am missing the catch and I dont want to think I only owe $2000 when I would really own another 8000 later........

Well, the property is not being auctioned, just the lein.

You then have to collect on the lien or foreclose(if you can). That is my understanding. I am not a lien specialist by any means.

I dont know for sure... most of them just say "tax sale"... I guess thats a lien auction right?

whats the diffrece betwee a sheriff sale auction and a lien auction?

Thanks! :mrgreen:

sheriff sale is foreclosure

Tax sale is tax lien. This gets you only a lien. You still have to collect on it or foreclose if laws allow it.

how much does foreclosure useually cost if you buy a lien and they dont redeem? is the cost mostly in the lawyer? do most lawyers require payment up front or can you pay them after?

am I right about the premium? even if you bid more you only pay 20% of it? you never have to pay the rest?

I am just terrified of hidden costs and I cant find much info on that stuff.....

The process of tax lien auctions varies from state to state. They all fall into one of the following categories:

Lien state
Deed state
Hybrid state

When a person fails to pay thier property tax the county puts a lien on that property for the tax due plus and associated fees. The owner of the property has a set amount of time to pay the overdue taxes. If the owner fails to pay the taxes within the alotted time then the county will sell the lien at public auction.

In a lien state you are purchasing the lien only from the county. The lein is worth the amount of taxes due by the owner. The owner then has a set period to pay you back for the lein. On top of the initial amount of the taxes the past due property owner would also have to pay you a percentage. Depending upon the state you are in the percentage will be different. If the property owner doesn't pay the lein holder (you) back within the given time then the physical property goes up for aution. You may attend the auction and bid on the proprty but you do not have any priority over other bidders. When whoever wins the auction pays the county your are reinburced for your lien.

In a deed state you are auctually bidding on the deed for the property. The only state I am aware of that is a full deed state is New Mexico. The high bidder of the auction it awarded a deed by the county. At this time the only lein extinguished by the auction is the tax lein. If there were any pre-existing leins on the property (mortgage, home loan, etc.) then those will still exist. So in this type of auction you will need to do significant research.

A hybrid state you purchase the deed, but the owner has a redemtion period to pay back the lien plus interest. This typically results in quicker payment of the lien.

There are also variations of bidding structure from state to state. Some states you are bidding on the actual price you will paythem for the lein, in other states you are bidding on the percent return you are getting on the lien. In the case of bidding on the percent you are starting out at the maximum percent they will give and "Bidding Down" the percent. This is where the premium comes in. For instance say a properties premium is
$3000 and the percent you are bidding starts at 30% you would comete with the other bidders by decreasing your percent. Once the lowest percent has won the winner will then pay the premium and will be issued a lein worth the premium + the % of the premium.

You should always check with your local government for the most accurate information concerning lien auction. You can typically find the county tax assessor's website online. That would be a good place to start looking.

There are also books written specifically on the subject that are of great help in understanding the process.

Tax lien investing can be a safe way to invest with real estate however, as with other real estate investing methods it is not something that will bring a large return of money very quickly. Also do not expect to pick up a $500,000 home for $1000, there will be many other people at the auction and will drive the prices up.

dr dank, most of what you said I have read elsewhere but:

Originally posted by "drdank":
......In a lien state you are purchasing the lien only from the county. The lein is worth the amount of taxes due by the owner. The owner then has a set period to pay you back for the lein. On top of the initial amount of the taxes the past due property owner would also have to pay you a percentage. Depending upon the state you are in the percentage will be different. If the property owner doesn't pay the lein holder (you) back within the given time then the physical property goes up for aution. You may attend the auction and bid on the proprty but you do not have any priority over other bidders. When whoever wins the auction pays the county your are reinburced for your lien....... .

this doenst make any sence... what about foreclosure then? I thought that if you bought the lien then if they didnt pay it you could foreclose
Originally posted by "drdank":
..........There are also variations of bidding structure from state to state. Some states you are bidding on the actual price you will paythem for the lein, in other states you are bidding on the percent return you are getting on the lien. In the case of bidding on the percent you are starting out at the maximum percent they will give and "Bidding Down" the percent. This is where the premium comes in. For instance say a properties premium is $3000 and the percent you are bidding starts at 30% you would comete with the other bidders by decreasing your percent. Once the lowest percent has won the winner will then pay the premium and will be issued a lein worth the premium + the % of the premium..... .

this doesnt make any sence from what I have read. especilly when combined with what you said above about the property going to auction if the lien isnt paid. why would someone bid down the % if they arent going to get anything. seems like a waste of time. but if someone bid down the % to 0, and then could foreclose on the property, that would make sence.
But the state I have been looking at I dont think they do the % bid.
Originally posted by "drdank":
.........You should always check with your local government for the most accurate information concerning lien auction. You can typically find the county tax assessor's website online. That would be a good place to start looking....

thats what I have been doing, but some of what they siad doesnt make sence, or just doesnt seem complete. Thats why I am asking.
Originally posted by "drdank":
...Also do not expect to pick up a $500,000 home for $1000, there will be many other people at the auction and will drive the prices up.

I am not, I know it will probably go up (and if it doesnt whats wrong with it?). its just werid that it would even start at that.....

but anyway, this is what I really really dont understand:

**IN THIS EXAMPLE, BIDDING WILL START AT THE SALE AMOUNT--$1,000.
IF THE WINNING BID FALLS BETWEEN $1,000 AND $40,000, THE ONLY AMOUNT PAID THE DAY AFTER THE TAX SALE IS THE SALE AMOUNT--$1,000.

**IN THIS EXAMPLE, ANY BIDS IN EXCESS OF $40,000 WILL BE SUBJECT TO A BID PREMIUM—20% OF THE AMOUNT IN EXCESS OF THE $40,000 (40% OF FULL CASH VALUE AMOUNT).

BID PREMIUM EXAMPLE

**FOR THE EXAMPLE USED ABOVE, WE WILL SHOW A BID PREMIUM CALCULATION FOR A BID OF $50,000.

BID $50,000 (50% Bid Factor X $100,000 Full Cash Value)
40% OF FULL CASH VALUE $40,000

AMOUNT IN EXCESS OF
40% OF FULL CASH VALUE
HIGH BID PREMIUM $10,000
X .20

BID PREMIUM DUE $ 2,000
SALE AMOUNT $ 1,000

TOTAL AMOUNT DUE
DAY AFTER TAX SALE $ 3,000

INTEREST EARNED BY INVESTORS
18% ON SALE AMOUNTS
0% ON HIGH BID PREMIUM

I understand from this that you wouldnt want to bid more of a premium then you would get back from intrest on the sale amount unless you could get the property.

1. Most liens are redeemed if there is real value in the property. Much more so if there is a lender junior to the lien.

2. In some auctions over paying is common given the format of the auction.

3. Being redeemed is not that bad if you are really investing to earn an income. As a way to get title to a property at a discount the odds are stacked against you. Tax liens sales serve a different purpose.

4. You have to know what you are bidding on or be prepared to just walk away. Some tax liens are being sold on property that has absolutely no value when the dust settles.

5. In one or more states tax liens will never turn into a title to the property. A tax deed sale auction is conducted when the time comes and your lien is paid off. You have no priority in the tax deed auction so if you want the title you need to bid.

6. In many cases tax liens can be pretty small relative to the property's value. That also means that you might be doing a fair bit of due diligence for what is a tiny transaction. Or you just use a shotgun and expect some write offs. You will not know if a lien was paid prior to auction as you can walk into the auction and be provided with a list of liens that are no longer available.

The above might be a bit negative. You will find some investors love tax liens and that they work well for them. Mostly folks who want some decent income and really want nothing to do with directly owning property. They also like hunting for a bargain.

John Corey