Bid Down Interest And Bid Up Premium?
I live in NJ and went to a tax lien auction for the first time. The bidding started at 18%, quickly went down to 0% and then up where flying the premiums. In one case, the back taxes where $20,000, and the investor bid up the premium to $35,000!
I don't get it????????
Can any one explain please!
I also live in NJ, and went to my first tax sell.
All 10 properties MV $200K - $400K bid down to zero interest with $30-$50K premiums.
Does the owner of the property have to repay the taxes due in addition to the premium paid to get te property tax certificate back to avoid foreclosure?
I hope not!
That would allow people to "steal" property. Someone started explaining to me the deal with the premiums. It seems that you get that money back once the whole isue is resolved (i.e., the owner paid the taxes or you foreclosed on the property). It seems to be some sort of interest free loan to the city.
There is also a 2%, 4% or 6% "bid" penalty that the property owner has to pay.
I'm still trying to find out all the details...
jic--(NJ)----------------------
I'd suggest that you read the state statutes on the lawf of New Jersey related to collection of delinquent property taxes. Then you will really know what is going on.
There is a lot of wrong information from many different people on topics related to tax sales and tax liens. Some of it even comes from the treasurer/tax collector staff people.
I talked to an attorney in Oklahoma state about doing some legal work for me after I acquired properties at a tax resale. S/hee did not know the law on the topic and was trying to give me advice. Never used that person, of course.
Good Investing*************Ron Starr***********
New Jersey has a unique bidding mechanism. If you wish to understand the tax lien industry, i highly recommend the website www.taxsalelists.com where they sell manuals on every State and also sell the "Comprehensive Guids to Tax Lien Investments" which is the most honest and uptodate material on tax liens in the market today. I purchase the entire set myself, and am only a good customer and in no way connected otherwise to this website. But, even as a professional investor in tax liens, i depend on its information to check against my own knowledge of the business sometimes. John Lane, the owner of the website, is a veteran of 16 years in this industry and is the most giving and honest person you will find in this business.
In NJ, there is an 18% interest rate on the lien and you also earn a 2,4 or 6% bonus penalty on the lien depending on the size of the lien (delinquent taxes, or min bid amount) (i forget the breaks, but i think they are less than $10,000, between $10-50,000, and greater than $50,000 or something like that.
In the bidding you first bid down the interest rate. When you bid down to zero percent, then you can bid up the premium. If the lien is redeemed, you get back your investment including the overbid, but you earn no interest on the original investment of the lien cost plus the overbid.
However, the reason many institutional investors bid up the premium is that the buyer of the lien gets to earn the full 18% on paying for the "subtaxes" or subsequent taxes owed on the property when they become delinquent. So, that plus the bonus penalties make the investment still very attractive, especially since interest rates are so low currently. These institutional investors may have a cost basis of only 2% for funding this investment, so even if they paid $30,000 premium on taxes of $20,000, after they paid the first subtaxes of an additional $20,000, their average return will improve to an interest rate of 18% X 20000 / 70,000 or more than 5%, plus the bonus of 4% on the initial $20,000. So that is a pretty good investment for them!! Plus, if they do not get redeemed in two years, and they get the property, that would improve their return significantly given the price of real estate in NJ.
This is why they bid up the premium even at zero percent! The key is "subtaxes"!
Richard
Isn't it a gamble to count on being able to pay the subtaxes? You have to wait at least a quarter before you can start paying for the subtaxes. Don't you?
What if the property owners pays the overdue taxes before you get to pay the subs?
Thank you.
I used LandMark Capital Group from PA, they have awfully lot of free stuff sent every quarter in their newsletter. I still use the last copy of the Tax Lien Times that explains almost everything about NJ.
They are at ****Must Reach Freshman Investor status before posting URL's***
lcginvestmentscom that is.
In NJ, the subtaxes sometimes are payable a few days after the tax sale depending on the timing of the tax sale versus the delinquent time table of taxes in that municipality. So some institutional buyers research heavily in this area and know exactly how much subtaxes they can purchase how far down the road, and if they have to provide interest free loan for 10 days for the risk of earning 18% in 10 days, they would go for it in this low interest rate environment where their funding cost may be only 1% !
RC
chiba,
How long have you used Landmark Capital Group? How satisfied are you with them and their service(s)? The reason I ask is that I have not found anyone who has heard of them, including the NTLA, which is kind of a red flag..