Tax Lien Sales for Newbies?

[Joshua Pfeffer]

After doing several searches on the BP Forums, as well as on Google, I came up with more questions than answers when it comes to investing in tax lien sales. I’m hoping that a few investors with experience in this arena can maybe chime in and help answer some of those questions for me, and for others who may read this post.

My county is having their annual tax lien sale in about a month. They’ve just released their list of first, second, and third offerings, and after scouring nearly 600 pages of offerings, I’ve found a handful of properties that seem interesting enough to invest in: ie, not along a river that is known to flood, not some weird 20 square foot triangle of land between neighborhoods, and not a $20k property with $100k in taxes owed on it.

I have this idea about tax sales that if there is a $100k property, and they owe $10k, that going in to the auction with a bid number of $20k is probably a fair bet, assuming I’ve confirmed the value of the property. My questions are:

1) My county states that the surplus funds are the property of the owner of the property, which makes no sense to me. If I bid $20k on $10k worth of taxes, could the property owner theoretically go and collect that $10k in surplus and pay off their tax lien? Do they not owe me the surplus if the county just assigns it to the homeowner? I feel like I must be missing something here.

2) What am I looking for in a title search? Tax liens are superior to all other liens (besides federal, right?). So if I find a mortgage, and some HOA fees, and I buy the state tax lien, what happens to the other inferior liens, and what is then my relationship with those inferior lien holders? How do I interact with them, what power do I hold, etc?

3) How frequently do these properties ACTUALLY go to foreclosure? Should I bid as if it will go to foreclosure and I’ll own the property, or should I bid as if I’ll only get redeemed on the tax value and stay conservative?

4) What other issues come up commonly? Where can I get burned? Do the demographics of the county play a role in the bidders, or will these sales draw high dollar bidders from the surrounding areas? I only ask because it’s a very low income county in the countryside, so I’m wondering what to expect the other bidders to be like.

It seems like all of the articles online say “this isn’t for beginners!”, then people like Kiyosaki suggest it as an investment strategy.

Basically, I guess I’m saying “HELP!” And hoping for some experienced voices to chime in on these specifics.

Thank you in advance!