Foreclosures tax sales are the product of homeowners who fail to meet their tax obligations and lose their homes to the government. The government often sells properties that it has acquired through tax foreclosures to people who can pay the taxes that are owed. They are sold in proceedings during a tax foreclosure sale (or tax deed sales). Government tax sales were created to recover the taxes that the original homeowner did not pay.
In selling these properties under tax foreclosure, the government offers the liens (the unpaid taxes, the interest for those amounts, and the selling costs involved) to interested investors in a public auction. In case there are many prospective buyers of these liens, the winner is awarded the properties in any of the following methods:
-Bid Down the Interest Method – The government fixes a maximum rate of return and the bidders have to stay within that rate limit specified. The investor accepting the lowest rate of return among the bidders is declared winner of the tax foreclosure property. In cases of ties on the bids, the impasse is resolved through a random or rotational method.
-Premium Method – In the premium method, an investor who is willing to pay the highest premium on the lien amount is declared the winning bidder. This method of selecting the winner in an auction is used and preferred in some parts of the country
-Rotational Selection Method – The investor listed first in the list of bidders gets the first offer of the liens in the rotational selection method in the auction. In case he declines, the offer is made to the investor next in the line and so on. The first bidder, who declined in the first round, is offered another lien only after an equal chance is given all potential investors that are included in the list.
-Random Selection Method – In this method in an auction, the potential investor gets selected through a random process usually done through the use of computers.
-Bid Down The Ownership Method – The lien in this method given to the bidder who buys the property at its lowest cost. If he buys it at 90% of the property cost, and in case of redemption of the lien by the original owner, this investor would only be eligible for 90% ownership and the remaining ownership of 10% would go to the original owner of the property in question.
Not all liens get sold right away in an auction and when this happens, the unsold liens remain in the hands of the government entity that conducted the auction. It could conduct another auction later. In the meantime that the liens are unsold, the unsold liens are called “struck” liens.
The last thing you want is to miss out on a good investment because you don’t understand the auction procedures. Make sure you fully understand the type of auction you are going to. If your new to investing you might want to consider joining a real estate investment club
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