How To Calculate High Bid Premium

[Kenda Bell]

I am preparing to dip my toe into tax lien auctions in Baltimore City this May. I am logging potential properties I am interested in BUT I am confused as to the bid itself and the actual high bid premium

1) When I submit my bid,do I submit the total amount i plan to pay OR the high bid premium?

2) How can I calculate the HBP? I have no idea..I saw examples but the lingo didnt make sense to me,...is it basically 20% of the 60% of the value of the property + the lien amount? Is that what I need to have available in my account.

3) Would $2500 be a good start to bid on low lien amounts such as $200 - $600 ..like maybe 2 or 3 

4) What about condos? I saw a few condos on the list, would u advise/not advise on those? Are the different than actual houses/lots?

Thanks!!

[Matt Schelberg]

@Kenda Bell

Yes, the tax lien bidding process is complicated!   Answers to your questions are below:

1) The simple answer is that your bid is the dollar amount you would pay for the property at foreclosure.  The lien is paid by you immediately following the auction and the balance is due if/when you take title to the property through foreclosure.  Example:

If the lien is $507 and you bid $510, you would pay $507 immediately after the auction and $3 when there is a judgment for foreclosure...plus you would pay:

• subsequent taxes that have accumulated
• interest
• penalties (violations, water bills, etc)
• expenses and charges
• attorney's fees

2) The HBP only applies when the bid exceeds 40% of the assessed property value.  This is best illustrated through an example:  

Assessed value: $25,000

40% of the assessed value is $10,000 ($25,000 x 0.40 = $10,000)

Your Bid: $20,020

Your bid is $10,020 higher than the 40% level.  You multiple this amount by 20%, and that is the HBP.  $10,020 x 0.20 = $2,004.  

So immediately following the auction, you would pay the lien amount plus the HBP.  If you are lucky enough to take the property through foreclosure, you pay the unpaid balance (unpaid balance = bid - lien - HBP)

3) There is no correct bid amount for a $500 lien...it depends on the property value.  Some $500 liens could be worthless, some just barely worth it, and some worth thousands of dollars.  Your bid should be based on what you would be willing to pay for the property in 1-2 years, minus additional taxes, expenses, fees, violations, attorney fees, etc.).

How could a $500 lien be worthless?  Well, it will cost you thousands to foreclose, plus thousands more for future taxes, interest, Baltimore City violations, etc.   So if you bid $500 for a $500 lien, it could easily cost you $5,000 to $10,000 to take the property through foreclosure.  

There is also the risk that bad things will happen to the property during the time you are waiting to foreclose.   The property could be vandalized, have fire damage, roof damage, etc.  So your bid must take into account those potentially negative outcomes.

I highly recommend sitting down and reading the statutes...or make friends with a law student or attorney who can do it for you.  Good luck!