Step by Step Investment Process

VII. Step by Step Investment Process

1. Step by Step Investment Process
   • Call the County Office governing Tax Liens and Deeds
   • Request a copy of the upcoming sale list or the third party vendor information that conducts sales on behalf of the county
   • Research the property information on the local Property Appraiser’s office website
   • Look Up the Property on Google Earth (be sure to check dates of the images as some may be outdated)
   • Find the Market Value (Zillow, Redfin, etc)
   • Conduct a Title Search
   • Conduct a Recorded Lien Search
   • h. Conduct a Nuisance Lien Search
   • Cursory Inspection of Property
   • Market Value Analysis
   • Review of the current owner’s status
   • Valuation
   • Bid
   • Win
   • Quiet Title
2. Step 1 – Research Tax Sale Property Before the Auction
   • While bidders regularly bid on tax sale property sight-unseen, that doesn’t mean you sidestep any kind of research. You want to know what you are bidding on and go into the auction with a list of properties that meet your bidding criteria. There are 4 entities to utilize to conduct your research – much of it can be conducted online:
     • County Treasurer – This is the office that conducts the sale and will have a list of properties slated for the tax sale auction several weeks before the auction. Begin with that list.
     • County Assessor – When you have a parcel of interest, use the county assessor’s office to look up their potential value.
     • County Recorder – At the recorder’s office you can investigate whether there are other liens, claims or judgments – like an existing tax lien, or even an IRS lien against the property. Such issues can be common with tax delinquent owners. You may not want to bid on a property with a lot of claims against it.
     • County Surveyor – If you’ve found listings of interest, you can look up their plat maps and aerial views to see if they are worth considering. Many tax sale parcels are
     • landlocked, are unusually shaped, sit miles from any development, or have no road access, making them virtually worthless.
3. Step 2 – Pay Any Auction Fees and Deposits
   • Many auctions levy fees or deposits in the auction process.
     • Fees – Charges that are non-refundable. Some jurisdictions charge fees to all bidders just to participate. Others charge fees only against actual bids. Either way, the amount of the fees must be calculated into your yield. Many Arizona jurisdictions charge $125-$150 non-refundable fees to participate in annual certificate sales.
     • Deposits – Charges that are refundable. This is a way that counties force bidders to have some “skin in the game” and ensure they have serious bidders. Deposits are refunded at the end of the auction to those who didn’t bid or win. For those who did win, deposits are normally subtracted from the winning bid, so the buyer only owes what remains. Most counties in California impose deposits ranging from $2,500 to $5,000.
4. Step 3 – Bid at the Tax Lien or Tax Deed Sale
   • Once you have a list of potential properties, you’re ready to head off to the auction. Noted above, you may be participating in a live sale at the county courthouse or other location. Or, you may be bidding online using the county’s designated system.
   • Understanding Bidding Formats for Tax Lien and Tax Deed Sales
   • However, bidding on tax deeds – and tax liens in particular – is not as simple as a customary auction. Over the years, many states, counties, and municipalities have adopted various creative methods bidders must use. The 5 major methods are:
     • Bid Up the Price This is the traditional auction format in which bidders compete by raising prices against each other. With a tax sale, the opening bid is usually set at the amount of back taxes, plus accumulated interest and any penalties. In this kind of auction, bidders will increase their offering price from there.
       • For deed situations, the figure represents the amount the bidder is willing to pay if the property is foreclosed. For lien situations, it generally represents the amount the bidder is willing to tie up in the certificate. Interest is still generally based on the amount of back taxes and interest/fees owed, so the more the investor bids, the lower their yield is.
     • Bid Down Interest Rates One of the more usual bidding procedures is used in Arizona and a couple of other states. It’s called “bid down interest” because that’s what competing bidders actually do – they bid down the interest they’re willing to accept. For example, in Arizona, the stipulated interest is 16%. Bidders will compete with each other to work that backward, and it’s not uncommon to see bidders accepting interest as low as 4%.
     • Bid Premium Auctions Some states that use traditional auction bidding processes have adopted a bid premium to counteract a loophole in the process that allowed people to increasingly bid with no realistic ceiling. In other words, it’s to help stop $200,000 bids on $100,000 properties that make no sense that bidders knew, because of auction procedures, they really didn’t have to pay.
       • A bid premium is usually a percentage of the amount that’s bid over the fair market value of the property. Using Maryland as an example, which levies a bid premium, if someone bid $200,000 on a house worth only $100,000 they’d have to fork over to the county $32,000 along with the amount of taxes/interest/penalties. That premium is held without interest until the owner either redeem or the property goes foreclosure. Either way, it’s a long time to tie up $32,000 without interest, so it helps keep bids in check.
     • Lottery Very few locations offer this, and it’s usually with live auctions. In an auction lottery, a parcel is offered for sale, but only to the person who’s lottery number is drawn. If the person bids, generally, they win the process. If they decline, another lottery number is drawn, and that person is given the option of bidding a figure.
     • 5. Purchase Tax Liens or Tax Deeds After the Auction In many locations, the tax sale isn’t the only time you can buy tax foreclosed real estate. Many tax-defaulted properties never get sold at auction, and many counties and municipalities have methods of selling those properties which they end up with on their books. There are two after-auction opportunities:
       • Over-the-Counter Tax Lien Certificate Sales – In a lien state, if a county ends up with unsold tax liens, they often make them available through what are called “over the counter” sales. Any time after the auction a purchaser can acquire a county-held certificate for the amount of back taxes, accumulated interest, and penalties. There’s no bidding – it’s first-come, first-served.
       • County Held Property Sales – In deed states, property that is not sold at the auction becomes city or county-owned and often placed up for sale. Even in lien states, when unsold liens expire, the properties revert to the county or city.
       • You can find lists of county-held tax lien certificates – or property – right on the treasurer’s website.