NJ Tax Lien Questions

[Hanming Zeng]

Hi folks,

I am new to NJ tax lien investing. I found a lot of tax liens sales are conducted online in NJ through realauction.com - I was able to see the bidding results in the past. To my surprise, a lot of the winning bids exceed way way way more than the face value, which I don't quite exactly understand. One example I saw was a lien was put on a house with a face amount of about $600, the winning bid is more than $20,000! The house is valued at about $400,000 according to zillow. Here are my confusions:

1. why are people willing to bid so much over the face amount? I understand if they think they are likely to have this property foreclosed so they can snatch the title in 2 years. But given about the fact that 95% the liens get reedeemed, wouldn't it better off to invest the $20,000 somewhere else in the 2 year period?

2. I understand that the winner can opt to pay subsequent taxes, which they will earn 18% interest rate. Assuming $8000 annual tax bill on the above example, and the lien holder opts to pay for 2 years, which is $16,000. On 18% rate, the earnings are $2,880. Assuming redemption, the investment would have been $20,000 (bid amount) + $16,000 (2 years of subs) = $36,000 - the total return is about 8% (annualized to 4%) - which does not seem like a great investment to me

Can someone help me understand this?