I just came from our county real estate tax sale. There will be 6300 properties offered over 3 days and they are using the RAMS system which is a computer auction system. Basically they set up a 100 computers and you sit in front of the screen and bid from 18% to 0% interest, low bidder wins and you have 5 seconds to bid.
What I found amazing was that 5 or 6 companies were doing all the bidding at between 0% and 3% interest which the majority going for 2%. I find it a little hard to believe that you would accept 2% on your money and the main motivation must have been speculation that the original owner would not pay the back taxes and then the winning company at the tax sale could pick-up the property cheap. All you would have to do is keep the taxes current for the next 2-1/2 years and then apply for a deed. Has anyone had any experience with this bidding of 2% or less??? Some people were bidding 0% which was even more incredible!!!
I had two properties I was interested it but did not have the time to sit there and wait for them to come up. Even if they had, I would not have bid 3%.
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I've never heard of such a system.
Was that 2% per month, per quarter, per annum?
The system doesn't make sense unless there are some steep upfront fees tagged on for delinquent homeowners. Otherwise, it would encourage the homeowners to be delinquent on their taxes, effectively borrowing money at 2% interest.
FKA Blue (eyeddevil)
The interest rate was a six month rate so if you bid 2%, it would be 4% per year. That seems like a pretty low rate to me on money. There has to be a tremedous amount of speculation but I do not understand how you could make money buying properties at tax auction because the current property owner has 2-1/2 years to make good on the taxes and redeem the property. Who the heck wants 4% on thier money on a risky business like this. Also there were a number taxes for properties sold at 0% and 1% interest.
Basically if the back taxes are $5,000, you use a computer program called Real-Time Auction Management System or RAMS (you can look it up on the internet)to make a bid. There are 19 squares representing 0% interest to 18% interest which is a six month rate. You have approximately 5 seconds to click on a square for the interest you will take on your money. If you are the winner, you pay the $5,000 in back taxes and get a certificate showing you as a lien holder. If the current property owner does not pay taxes for the next 2-1/2 years and you keep paying the taxes, you can apply for a deed to own the property. If however the property pays all the back taxes, you get your original money plus whatever interest rate you bid. I was kind of dumbfounded the rates were so low.
The buyers obvously have deep pockets and are okay with the rates because of the average yeild.They are betting that there are some winners in every pile they purchase. If you buy 100 properties at 10k, you probably will get a winner or two. Or, they might use their position to get to the sellers and buy at 60 or 70% of fmv.I'd probably keep digging until I understood why they do this. I highly doubt that they are losing money. FKA Blue 10,(eyeddevil)
Has the county already taken the properties and foreclosed? It sounds like the answer is "no" and just a tax taking has occurred, but no tax foreclosure. A taking is simply the recording of a lien against the property for unpaid taxes. Otherwise, if it had sold the property at a sheriff's sale and been the high (or only) bidder, the county would just sell the property, subject to the right of redemption and prior encumbrances. If there are mortgages on the property and the county doesn't have a deed yet, the "winner" of the auction gets the same lien the county has, subject to prior encumbrances, and subject to the need to conduct a foreclosure sale. In other words, the county gets the taxes paid and doesn't have to deal with the problems and expenses associated with the foreclosure process. A bidder needs to know what other debt there is on the property before he can evaluate the situation.
Or maybe this is some sort of scam.
If however the property pays all the back taxes, you get your original money plus whatever interest rate you bid. I was kind of dumbfounded the rates were so low.
I'd want to know who is holding the money you are supposedly getting back if the homeowner redeems.
first thing that comes to mind is i'd bid on my own tax bill at 0% if not allowed then i'd sure have someone doing it
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Were there billable legal expenses, along with the interest rate?
Here in MD going to tax auction means you are gonna pay a whole lot of legal fees to get your property back.
Edited 11/5/2007 8:36 pm ET by sledgehammer
I'm sure all states have that paperwork fee and the fee is built into the lump sum bid. I'm just trying to figure out how much it is. FKA Blue (eyeddevil)
Guess I'm a dumb ole country boy but I've never heard of an auction where the LOW bidder wins.
"What's an Arkansas flush?......It's a small revolver and any five cards."