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Tax Lien interest (too good to believe?!)
I have the most basic question (I understand the "basics" of Georgia tax sales):
So, a property owner needs to pay the sale price plus 20% interest on a tax sale I purchase at auction in order to redeem it. Is that "sale price" the opening bid, or the final auction price? I've looked everywhere I can think.ot, including these forums, to answer the question but can't find a clear one. It seems to me that this price must be the starting bid...? Correct? Ie if it is listed as $1000 and sells for $2000 the redeemer would need to pay $2200 to me? As opposed if it were the final auction price they'd owe me $2400 (20% of 2000)?
the follow up question is whether or not it's possible to recover your "own" excess funds?
Thanks for helping out a dummy.
Jack
Quote from @Jack Raine:
I have the most basic question (I understand the "basics" of Georgia tax sales):
So, a property owner needs to pay the sale price plus 20% interest on a tax sale I purchase at auction in order to redeem it. Is that "sale price" the opening bid, or the final auction price? I've looked everywhere I can think.ot, including these forums, to answer the question but can't find a clear one. It seems to me that this price must be the starting bid...? Correct? Ie if it is listed as $1000 and sells for $2000 the redeemer would need to pay $2200 to me? As opposed if it were the final auction price they'd owe me $2400 (20% of 2000)?
the follow up question is whether or not it's possible to recover your "own" excess funds?
Thanks for helping out a dummy.
Jack
In several states (I have no idea about yours) the bidding takes the form of lowering the interest you will charge the owner to redeem the tax lien, not that you would pay more than the lien itself. So your bid is, say, 5 percent on the amount of the lien (let’s say $1,000). That means you would pay the county $1,000 and agree to charge only 5 percent interest on that $1,000 for the owner to redeem. The next bidder on the tax lien bids 4 percent (he’ll only charge the owner 4 percent interest to redeem). Since 4 percent is lower than 5 percent, the 4 percent bid is a better deal for the owner, so that bidder “wins” the auction, not you.
It’s not uncommon for the bid to be zero percent, the tax lien buyer making his money on obtaining the property and selling it if there’s no redemption.
What your state’s laws are I have no idea.
Quote from @John Clark:
Quote from @Jack Raine:
I have the most basic question (I understand the "basics" of Georgia tax sales):
So, a property owner needs to pay the sale price plus 20% interest on a tax sale I purchase at auction in order to redeem it. Is that "sale price" the opening bid, or the final auction price? I've looked everywhere I can think.ot, including these forums, to answer the question but can't find a clear one. It seems to me that this price must be the starting bid...? Correct? Ie if it is listed as $1000 and sells for $2000 the redeemer would need to pay $2200 to me? As opposed if it were the final auction price they'd owe me $2400 (20% of 2000)?
the follow up question is whether or not it's possible to recover your "own" excess funds?
Thanks for helping out a dummy.
Jack
In several states (I have no idea about yours) the bidding takes the form of lowering the interest you will charge the owner to redeem the tax lien, not that you would pay more than the lien itself. So your bid is, say, 5 percent on the amount of the lien (let’s say $1,000). That means you would pay the county $1,000 and agree to charge only 5 percent interest on that $1,000 for the owner to redeem. The next bidder on the tax lien bids 4 percent (he’ll only charge the owner 4 percent interest to redeem). Since 4 percent is lower than 5 percent, the 4 percent bid is a better deal for the owner, so that bidder “wins” the auction, not you.
It’s not uncommon for the bid to be zero percent, the tax lien buyer making his money on obtaining the property and selling it if there’s no redemption.
What your state’s laws are I have no idea.
I appreciate the response. Georgia is not a big down state however.
I would recommend reaching out to the county tax commissioner or treasurer for guidance on the tax sale guidelines as they may vary by county. Typically the opening bid is equal to the amount of taxes due plus costs.
To redeem a property, the owner or interested party must pay the purchaser the amount the purchaser paid at tax sale, plus 20% of that amount. In addition to this amount, the purchaser may also add to the redemption price the dollar amount of any subsequent property taxes the purchaser paid on the property after the tax sale took place.
Quote from @Chris Brevik:
I would recommend reaching out to the county tax commissioner or treasurer for guidance on the tax sale guidelines as they may vary by county. Typically the opening bid is equal to the amount of taxes due plus costs.
To redeem a property, the owner or interested party must pay the purchaser the amount the purchaser paid at tax sale, plus 20% of that amount. In addition to this amount, the purchaser may also add to the redemption price the dollar amount of any subsequent property taxes the purchaser paid on the property after the tax sale took place.
#3 1031 Exchanges Contributor
- Investor
- Las Vegas, NV
Yeah that make zero sense…
Imagine a paid off $400k property with $500 in back taxes. So I bid $300,000. Now they owe me $360k? Or I get the property for $100k off? That doesn’t seem likely that the state would let that happen to a homeowner.
Even if the homeowner got the excess funds imagine the bid is $100k. Either the homeowner loses $300k in equity or pays $120k to pay off a $500 lien.
Quote from @Bill B.:
Yeah that make zero sense…
Imagine a paid off $400k property with $500 in back taxes. So I bid $300,000. Now they owe me $360k? Or I get the property for $100k off? That doesn’t seem likely that the state would let that happen to a homeowner.
Even if the homeowner got the excess funds imagine the bid is $100k. Either the homeowner loses $300k in equity or pays $120k to pay off a $500 lien.
Well it DOES make sense in two other important ways:
1) it's an incredibly strong incentive to pay your taxes....
2) covers the risk that you don't get paid. If you pay 300k and the owner doesn't redeem, in order to get your investment back you'll have to foreclose on the property. Which I think is why MOST properties don't sell for that close to the market value.
its not that much different from a stock option right? Pretty good potential upside, but better than even potential you lose the money. Except in this case they're letting you lay claim to real property if you "lose" the investment.
#2 All Forums Contributor
- Investor
- Virginia
@Jack Raine
Typically no. The interest accrues on the amount of taxes owed, not how much you bid. When you get higher, you are essentially bidding down the interest rate that you receive.
I am not a tax lien specialist and recommend reaching out to some of those who are very active on BiggerPockets like a Ned Carey
Quote from @Bill B.:
Yeah that make zero sense…
Imagine a paid off $400k property with $500 in back taxes. So I bid $300,000. Now they owe me $360k? Or I get the property for $100k off? That doesn’t seem likely that the state would let that happen to a homeowner.
Even if the homeowner got the excess funds imagine the bid is $100k. Either the homeowner loses $300k in equity or pays $120k to pay off a $500 lien.
The owner does get the excess in GA:
https://law.justia.com/codes/georgia/2022/title-48/chapter-4...
@Jack Raine I don not know specifically GA tax sale law. Normally the owner Only pays interet on the taxes owed.
You thought that 1) doing otherwise greatly increses the incentive to pay; doens't fly. The possibility of loosing your house is enough incentive to get people to pay. Further expecting people to pay more money thanis otherwise owed could be an unconstitutional taking of property.
Your point 2) that is covers your risk as an investor is also make little sense. In most states anything yiou overbid would come back to yiou on redemption of the lien. If it doesn't then tha is a risk you need to consider when bidding. The government's interst is in collecting taxes in a way that protects homeowner interests. They are not concerned with the risks investors take.
When you invest in anyting you need to consider the risk. In tax sale despite the positive hype of high interest and low risk there is significant risk in tax sale. One of the biggest risks is not understanding the laws an how it affects your investment.
In Maryland and other states you cannot collect "eccess Funds" if yiou have foreclosed on the owner. Theose excess funds go to the owner. As I said above in most states the excess funds woul be returned to the tax lien holder upon redemption. However that may not be true in all states and could be a risk as I mentioned above. Also as mentioned above is that often the county website will have information about the laws and how these maters are handled.
Good luck
Quote from @Ned Carey:
@Jack Raine I don not know specifically GA tax sale law. Normally the owner Only pays interet on the taxes owed.
You thought that 1) doing otherwise greatly increses the incentive to pay; doens't fly. The possibility of loosing your house is enough incentive to get people to pay. Further expecting people to pay more money thanis otherwise owed could be an unconstitutional taking of property.
Your point 2) that is covers your risk as an investor is also make little sense. In most states anything yiou overbid would come back to yiou on redemption of the lien. If it doesn't then tha is a risk you need to consider when bidding. The government's interst is in collecting taxes in a way that protects homeowner interests. They are not concerned with the risks investors take.
When you invest in anyting you need to consider the risk. In tax sale despite the positive hype of high interest and low risk there is significant risk in tax sale. One of the biggest risks is not understanding the laws an how it affects your investment.
In Maryland and other states you cannot collect "eccess Funds" if yiou have foreclosed on the owner. Theose excess funds go to the owner. As I said above in most states the excess funds woul be returned to the tax lien holder upon redemption. However that may not be true in all states and could be a risk as I mentioned above. Also as mentioned above is that often the county website will have information about the laws and how these maters are handled.
Good luck
Thank you Ned! This was my expectation. But it genuinely seems like in GA, the owner owes 20% on the final auction price. With the ability to recover the excess funds afterwards - so they're out the taxes the purchase paid on their behalf plus a potentially steep fee for doing so. As you and others have pointed out, and my initial assumption, that just seems hard to believe.
That said, I'm going to a sale on Tuesday, I will report back what I learn in person. I'll be asking the tax office tomorrow as well when I go to research the properties, and anyone who will give me the time of day at the auction - even if it costs me buying their lunch and a couple drinks😂.
And with regard to the rules/law, that's what predicated my initial question, it's so simple and clear I assumed I must be misunderstanding (quite the paradox).
"And anyone who will give me the time of day at the auction - even if it costs me buying their lunch and a couple drinks😂."
I met a future business partner at a live auction although it didn't work out. However I also met an attonrey who said "take me out to breakfast and I will tell you whatever you want to know about tax sale." That breakfast was a good investment for both of us. I still do business with him today.
Quote from @Bill B.:
Yeah that make zero sense…
Imagine a paid off $400k property with $500 in back taxes. So I bid $300,000. Now they owe me $360k? Or I get the property for $100k off? That doesn’t seem likely that the state would let that happen to a homeowner.
Even if the homeowner got the excess funds imagine the bid is $100k. Either the homeowner loses $300k in equity or pays $120k to pay off a $500 lien.
Exactly. Unbelievable. But that appears to be the case. I don't think most of the properties get anywhere near the market value though. You also have to remember that these are most likely (am assuming here) paid off properties - it's unlikely a mortgage company is going to let the taxes go unpaid. So ya, it's a $400k property, but I may have been purchased more than 30 years ago, for MUCH less than market value. It also appears that there's a STRONG correlation between tax sales and distressed property (plus, arguably, worthless property) - ie it's showing on Zillow it's 400k but for the last 5 years it's been a meth lab with fire damage, or whatever. A smart investor probably isnt dropping 300k on it. Rarely there may be a $1M home that somehow misses the tax due to probate after the owners death or whatever, in which case it very well may get near the market value. Looking at historic sales though, seems rare.
Quote from @Ned Carey:
"And anyone who will give me the time of day at the auction - even if it costs me buying their lunch and a couple drinks😂."
I met a future business partner at a live auction although it didn't work out. However I also met an attonrey who said "take me out to breakfast and I will tell you whatever you want to know about tax sale." That breakfast was a good investment for both of us. I still do business with him today.
That's what I'm most after at this auction - I'm clearly totally unexperienced - but I imagine I'll learn something even if I don't bid. I appreciate you taking the time to share some of your knowledge!
I found the below blog entry from a GA attorney who handles these. Pretty informative for someone just getting into this...
https://kimandbagwell.com/pitfalls-for-the-inexperienced-geo...
And on another thread (https://www.biggerpockets.com/forums/61/topics/1152882-tax-d...) there was an interesting point made by @Sam Bagwell (I wonder if the above is his firm -- likely)... if you engage an attorney to handle the debarment and the property is redeemed, you can end up upside down even with the 20%.
This is probably the best document from a county entity that I have found in GA for tax sales.
Are you planning on pursuing any in the near future here in GA? Love to connect. Thanks!
https://tax.forsythcountypay.com/resources/sites/forsythcoun...
To answer your question, GA is a 20% return on the amount you BID not the amount of owed taxes (the opening bid). If the owed taxes are $5,000 and you win a property for $100k at auction, the owner has 1 year to pay you back $120k (your bid + 20%). In GA, the owner does have access to the excess funds, so in the above example the owner would get $95k to go towards the $120k owed if they want to redeem.
I had the same question when I first started, couldn't believe that was the case when I finally got the answer.