There are Five Types of Tax Sale Auctions Bidding Systems
States, by statute, use one of the following types of tax sale auctions bidding systems. Oftentimes they will jump between one and another of these bidding systems. Usually, this happens as they run out of time during the Auctions.
I will list them here and then go over each of them. The five Tax Sale Auctions Bid Types are:
- Bid Down the Interest
- Premium Bid
- Random Selection
- Rotational Bid
- Bid Down the Ownership.
State Law dictates the bidding procedure. However, most states give the county official who runs the sale plenty of leeway as to which system they use.
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Let’s look at each auction type in more depth.
Bid Down the Interest Auction Types
Bidding down the interest and premium bid seem to be the most popular of the five systems out there.
In a bid down the interest system, the state sets some maximum rate. Bidders of the auction bid a lower amount from that rate based on what is acceptable to each bidder. Typically that bidding system lowers the rate by ¼ of a percent at a time. Sometimes no one offers a lower rate. This does not happen often. When it does, the county official usually picks at random; from the bidders who raised their cards. That person is then awarded whatever the statutory rate is for the state.
How do we make money?
Now the first question you might ask is how the heck are you supposed to make any money that way? Well in the short answer is it’s a bit tricky. In fact, Let me add another wrench into this for you. Institutional bidders are big bidders who have millions of dollars to spend. Banks and investment firms have gotten wise to these auctions. They have started going to them. This has been going on all along, but really took hold about 10 years ago plus or minus.
Seven States use Bid Down the Interest for Their Tax Sale Auctions
There are 7 States that hold auctions using the bid the interest system. These are Arizona, Florida, Illinois, Louisiana, New Jersey, New York, and Ohio. Of these, Florida and Louisiana both have 5% penalties in addition to interest rates. Florida’s rate is 18% and Louisiana’s is 12%. Illinois doesn’t have an interest rate, only a penalty and it starts at 18%. Of all the states, New York is the lowest maximum interest rate at 10%. Generally speaking, properties are worth more in New York. So the chances of redemption are a lot better. Arizona or Louisiana are both poor states in comparison, and so the redemption rate is lower.
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