Determine if Tax Liens Are For You
Even before you choose to tax on tax lien investing, you should learn about the pros and cons
You must understand some typical terms and methods like bidding down the interest, bidding on the premium, bidding on the ownership and redemption periods. When you get to the point where you have a good understanding of tax lien investing you should then determine if this suits your personality.
If buying tax liens are in your future, proceed to the next chapter!
Search The Web For Good Tax Lien Websites
This part is actually fairly simple to do. Tax lien sales are done at the county level, not the state level. So you should start with the county website.
Go to the google search engine and type in the state that you want to invest in, followed by “tax collector”. If I wanted to buy tax liens in California, I would type in “California Tax Collector” in the Google search engine.
This will provide you with a list of results that will allow you to either contact the tax collectors office directly OR (if available) sign up for auctions online.
Register With Online Tax Lien Directories
Keep in mind that not all Tax Lien auctions are available online so your county of choice may not be available.
You should be prepared to provide personal information about yourself such as your social security number, name, address, etc. You might need to set up an account and or provide a deposit which will be required if you want to be a bidder. There could be a minimum requirement to register as a bidder. Don’t worry it is refundable.
Understand the Rules Of Bidding For Tax Liens Online
There are quite a few ways to bid during tax lien sales auctions. In the event that there is more than one tax lien investor one of several bidding methods are used.
Depending on the laws of the county, the bid winner will be determined by one of the five methods below. Bid Down the Interest.with this bid method, the investor willing to accept the lowest interest rate wins. In some cases the interest rate can go as low as 0%, but this is rare.
Premium.With this method investors are fighting to see who will pay the most for the lien. In some counties the additional premium does not earn any interest and may not be refundable. Colorado is a state that uses the premium bid method.
Random Selection.With this method, a bidder will be selected randomly from all the bidders. Typically a computer is used to select bidders at random, but this can vary from county to county. Nevada is a state that uses Random selection.
Rotational Selection. With this technique, the bidder with bid card 1 gets the first lien, bid card 2 gets the second lien and so on. If this bidder refuses the lien, bid ticket number two may then bid. However, bidder number one will not be offered another lien until their ticket number comes up again in the rotation. Once bidder 1 bids, bidder 2 gets to bid, then bidder 3, then 4 and so on…then back at 1 and repeat.
Bid Down the Ownership. This method is used in Iowa and a few other states, the investor willing to purchase the lien for the lowest percent of ownership on the property will be awarded the lien. An example of this would be a case where the winning bidder only owns 60% of a tax lien. If the lien is not redeemed, the bid winner only receives 85% ownership of the property with the remaining 15% owned by the original owner. In actuality, very few investors will bid on liens for less than full ownership to the property.
So in case where multiple investors are bidding on the same property, the random selection process will be used instead. Liens that are not purchased at the auction are turned over to the county. Some states allow “over the counter” purchases of liens not sold at auction.