Delinquent tax auction - what am I missing?

[Pearce G.]

Yesterday, I went to my first delinquent tax auction—Berkeley County, SC—just to see how it works.

I guess most of them a pretty much the same.  Once a property is auctioned, the current owner has up to a year to pay off the delinquent tax and retain ownership.  If the tax is paid within the year, the successful bidder gets their money back plus an attractive interest rate on the delinquent amount (12% in Berkeley Co.).  If the delinquent tax is not paid, the successful bidder gets the property.

Here’s what I couldn’t figure out:

There were properties that appeared to be comparable on paper…i.e. SFRs owned by individuals in established neighborhoods probably worth upwards of 100K and owing $500-$1500 in taxes. Some would get bid up to 2K-5K; others were bid up to 50K!

I can understand the 2K-5K, but in order to bid a property up to 50K, you have to have a pretty good idea that the current owner is not going to pay off the delinquent tax. It doesn’t make sense to tie up 50K in order to earn 12% interest on 1K.

• Are these bidders who have researched the property—perhaps even contacted the owner—such that they know the tax will not get paid?
• Are they lenders trying to minimize losses by bidding on properties for which they still hold a note?
• Or are these corporate investors who bid up a large number of properties knowing that a certain percentage will not get paid off? For example, if you successfully bid 50K on 20 different properties that average over 100K in value, you could get a decent overall return if only 2-3 of them actually convey.
• All of the above?

Just trying to understand why some get bid up so high and others don't.