How do you know the difference between a public oral bid foreclosure auction and a public oral bid auction with right of redemption? There seems like so much to figure out!

After sorting through the mumbo-jumbo, there are FOUR categories that pretty much cover all the tax sales you might encounter. I've summed each of them up in an uncomplicated way with numerous examples, pros and cons, AND I've rated each of the categories with a letter grade!

All tax sales are not created equal, and this guide will help you find the truly fantastic bargains out there, as opposed to just the good ones.

Just read each section for a description of the different sales as well as real-world examples…

SECTION 1

“Public Oral Bid Foreclosure Auction”

or “Deed” Tax Sale

Arkansas, California, Florida, Idaho, Kansas, Nevada, New Mexico, New York (in some cases), North Carolina, Ohio (in some cases), Pennsylvania, Utah, Virginia and Washington.

In states that use this particular system, after the local government places a tax lien on delinquent real property taxes (we're using our lingo now), the lien is foreclosed, and the local government actually sells title to the property at a tax sale.

In other words, the owner didn't pay their property taxes, so the government took the property so it can acquire the money owed in back taxes by selling the property.

Every year, a county in one of these states will usually hold its own “public oral bid foreclosure auction sale.”

That's a lot of language for a pretty simple thing, if you break it down:

Public

Everyone who wants to come is invited. Wow! That's a lot of people, right? Not necessarily. Depending on how well the county advertises the sale, it's very possible that just a few people or YOU ALONE might be present!

Oral

Everyone present bids on a specific property until no one tops the final bid. The process takes place out loud.

Bid

If you offer one price, someone else at the auction has the chance to better your offer. This is why sparsely attended tax sales are so great. The fewer the people, the smaller the competition, the greater the reward!

Foreclosure

The properties on sale will be property with a tax lien foreclosed upon a certain period before the date of the sale.

Auction Sale

The local government is actually selling valuable properties at rates starting in many states at the cost of the delinquent taxes and fees alone!

Needless to say, this type of tax deed sale provides you, the well-informed and savvy investor, tremendous profit opportunities!

Some things to expect at a typical foreclosure auction tax sale:

Low Opening Bid :

The opening bid at one of these sales is usually only the prorated cost of the conducting the sale (i.e., staff time, paperwork, etc.), the back delinquent taxes, any other costs connected to those taxes. Small change compared to the value of some of these properties.

First Lien :

Property tax liens, under many state laws, are called the first lien . Real property taxes are generally considered senior to any other lien placed on a property, from a lender lien like a mortgage, to a federal tax lien, to the mechanic's lien that shower guy placed on the property for the work he did in the downstairs bathroom.

It's important to note, by the way, that all state tax laws are not created equal, and, as the smart investor you are, you should check on the seniority (or “priority”) of property tax liens as part of your research before you buy. Know local real estate law before making any permanent commitments!

Great Equity Opportunities :

If the state regards a property tax lien as the first lien, as illustrated above, that means that it's the heavyweight of the field, and it has priority. Imagine that all of the liens against a house (property tax, mortgage, judgment liens from a court) live inside the house. But Big Lou the Property Tax Lien, is the first lien, the priority, and the county forecloses on him.

If an investor buys Big Lou the Tax Lien, not only does the investor get the house, but ALL OF THE OTHER LIENS are thrown out of the house. All of those secondary liens, even a mortgage from a lender, are discharged and no longer viable.

If all the other liens are off the board that means you just purchased a $50,000 property for the price of a year or two's delinquent taxes and fees, typically under 5% of the value of the property. So, conceivably, YOU PAID UNDER $2,500 FOR 95% EQUITY ON THE PROPERTY!

EXAMPLE:

You're at an annual tax deed foreclosure sale in a county in Nevada, called in that state a “trustee sale.” You've done your due diligence, and you know that Nevada thinks of property tax liens as essentially first liens. The state gives them priority over all mortgages, deeds of trust, judgment liens, shower guy liens or any other lien you can think of, creating the opportunity of acquiring a property free and clear of any other debts it may have gathered over time.

One of the properties up for auction is a sweet little bungalow in Las Vegas once owned by Fish-Eyes Cantini, a minor functionary of the Cantini crime family who disappeared under mysterious circumstances a few years ago. It's a beautiful little place, lovely spot, a real vacation hideaway, assessed at about $120,000.

In any case, the property taxes haven't been paid. Two years ago the county tax receiver, according to state law, published a notice once a week for four consecutive weeks in the newspaper stating all of Cantini's vital statistics, a description of the property on which the taxes are a lien, and the amount due plus penalties and costs. Nobody showed up to pay that amount, Cantini being, as previously mentioned, mysteriously missing.

The tax receiver now issues to the county treasurer a certificate telling the treasurer to hold the property for two years, just in case Cantini reappears and wants to pay the back taxes and costs, getting his property back. Nobody shows. Fish-Eyes is obviously sleeping with the fishes. Two years later, the period allowed for Cantini to redeem of the property has expired, so the tax receiver executes a deed to the property to the treasurer, who then is directed to sell the bungalow.

So, the sale is posted in three different public places in the county. The required twenty days after that, no one with any legal connection to the bungalow has come forward to redeem the property, and the sale commences. You now know that under Nevada law, nobody previously connected with the property can redeem it after the sale!

This is where you come in. You've done your due diligence, identified this property as a hot prospect, and you go to the sale. One other person is there, Not-So-Smart Jimmy, who you sometimes see at tax sales. The treasurer opens the bidding at the AMOUNT OF TAXES, COSTS, PENALTIES AND INTEREST from the delinquent property taxes, in this case around $2,000!

You open the bidding at $2,000, but Not-So-Smart Jimmy quickly responds with a bid of his own, but he hasn't done his homework and he doesn't know what a sweet deal this is. He eventually drops out and you pay $3,500 and leave the treasurer's office with a deed to the property!

So due to your mastery of this system, you are now the owner of an excellent vacation house in Vegas to sell at a huge profit, or rent to tenants for essentially free money! And how much did you for it? The price of a moderately decent used car!

What happened in the fictitious EXAMPLE above is obviously a best-case scenario. I want to make sure you understand that every tax deed sale you go to will not be like this. However, if you do your homework and familiarize yourself with local real estate rules and this straightforward system, you are putting yourself in a position to make acquisitions and profits very similar to this one!

PUBLIC ORAL BID FORECLOSURE AUCTION

(“TAX DEED SALE”)

PROS & CONS

PROS

Low Opening Bid .

Usually the cost of the back taxes, plus administrative costs and penalties!

First Lien.

Many states consider property tax liens as priority to all other liens, wiping out any secondary ones!

Great Equity

A first lien may mean gigantic profits and huge equity for pennies on the dollar!

Free and Clear .

Generally, once you have the deed in your hand, it's yours. No messy contact or litigation from previous owners.

CONS

Competition

The fact that the state holds an oral bid auction (i.e., in public) means others attending the tax sale might want the same properties you're looking at, possibly driving up the bid.

SUMMARY

Tax Deed Sales are a great way to make giant profits on miniscule investments at little or no risk! Seek out sales with little or no other attendance to reduce the chance of competitor investors driving up the price.

SECTION 2

“Public Oral Bid Auction” Tax Sale

Alaska, Maine, Oregon, Minnesota, Wisconsin, plus some improved properties in New Mexico and New York.

Be careful! Do your due diligence! These states can do things quite a bit differently than the states above, and your ability to make fantastic profits from tax lien sales will be squeezed!

To find out why, let's break down the language again.

Public

Ok, so it's a public auction, just like we established before. Anyone who wants to be there can be there. You know by now to try to find sales that are less populated.

Oral

Everything is done out loud, check.

Bid

If you offer one price, someone else at the auction has the chance to better your offer. Right, you remember this, too.

Foreclosure

NOPE! Ah ha! While the tax liens on property are foreclosed upon by the state, the opening bid at the auction is most often NOT merely the cost of delinquent back taxes and penalties and administrative fees on the property. The opening bid is often A MUCH HIGHER PERCENTAGE OF THE ASSESSED VALUE OF THE PROPERTY, LIMITING YOUR ABILITY TO MAKE FANTASTIC PROFITS ON TAX LIENS!

So far, I've showed you that in many states that operate tax deed foreclosure sales, the county or other local government will place a tax lien on a property, essentially getting title to the property through foreclosure. Then, at a tax sale, in order to get the proceeds from the property tax owed to it, the county sells the lien, and in effect the property, to investors. The opening bid will most likely be the tiny percentage of the assessed property value that is the delinquent property taxes plus administrative costs and other penalties. As I've shown you above, this creates an opportunity for you to make and incredible profit for minimal risk!

ON THE OTHER HAND , some states allow their counties to set opening bids at a much higher level than the delinquent back taxes plus costs. It's possible you might even attend a tax sale where the opening bid is set near the actual value of the property. This practice can severely curtail your ability to make outrageous profits at little or no risk!

EXAMPLE:

You're in Duluth, Minnesota to help your mother move. The process takes a while, and you come across news that the county is having a tax sale while you'll be in town! The local statutory review period of ninety days after the forfeiture of the properties is ending next Tuesday, after which there will be a sale. What luck!

You do some research and some due diligence, and you're very excited about your prospects. You've located a couple of excellent properties that will be going on sale, including one amazing house that has been abandoned for some time, but is still in really excellent shape. It's assessed at about $200,000.

The day of the tax sale arrives, and you've prepared yourself to bid on the properties. From your experience at other tax sales you assume that the bidding will start at the delinquent property taxes plus costs, a tiny fraction of the true value of the properties. You're prepared to bid up from that starting point, even to around $10,000 for the lien on the amazing house.

The county auditor opens up the bidding with the amazing house, declaring an opening bid of… $195,000! What? How are you supposed to make amazing profits with little or no risk at this tax sale if the bidding starts very near the actual value of the property? Well, you did excellent homework on the properties themselves, but you didn't look into local real estate tax law, which provides that during the tax sale the county auditor shall sell the various parcels of land “to the highest bidder, BUT NOT FOR A LESS SUM THAN THE APPRAISED VALUE….”

“Appraised value” of real property means the “market value” of the property, which is essentially the going rate during a private sale of a similar property.

You help your mom move and get out of Minnesota quickly, off to state where they have better opportunities to make something out of the deal.

PUBLIC ORAL BID AUCTION REPORT

(ADJUSTABLE OPENING BID)

PROS AND CONS

PROS

First Lien .

Many states consider property tax liens as priority to all other liens, wiping out any secondary ones!

Free and Clear .

Generally, once you have the deed in your hand, it's yours. No messy contact or litigation from previous owners.

OK Equity .

A first lien can still mean big profits and great equity, as you are acquiring the property with all other liens discharged!

CONS

Competition .

You still run the risk of competitive investors driving the price of the property up.

Higher Opening Bid .

Not usually the cost of the back taxes, plus administrative costs and penalties! Generally these state offer their counties the ability to set opening bids at higher or much higher levels.

SUMMARY

Opportunities for savvy investors can still be located, but due to the generally higher opening bid price, are less likely to secure huge profits with little or no risk to yourself. Sales with little or no other attendance are still your best opportunity to reduce the chance of competitor investors driving up the price even more. Better opportunities can usually be found elsewhere!

FINAL GRADE : C-

SECTION 3

Public Oral Bid “Tax Certificate” Tax Sale

Essentially; Alabama, Arizona, Colorado, Florida, Illinois, Indiana, Iowa, Kentucky, Maryland, Michigan, Mississippi, Missouri, Montana, Nebraska, New Jersey, North Dakota, Oklahoma, South Carolina, South Dakota, Vermont, and Wyoming. California, New Hampshire, Ohio, and New York allow tax certificate sales, but they're not universal.

Now that I've established which states use this particular system, let me tell you what these things are:

Real estate experts around the country have been buying tax certificates for years, using these little known secret gems to gain outrageous returns on their investments. Why should they have all the fun? It's not rocket science. It's not brain surgery. All it requires is a little research, good judgment, and the knowledge I'm teaching you right now through this eBook!

A TAX CERTIFICATE is evidence, or a license if you want to look at it that way, showing that the investor has purchased a tax lien. Remember that a tax lien is a claim placed on a real estate property by a local government due to the owner not paying delinquent taxes.

So a tax certificate is proof that you, the investor, have paid the local government any outstanding property taxes on a specific piece of real estate. In exchange for that payment, the property owner now has to pay you the amount of the delinquent taxes, plus a sometimes extremely lucrative interest rate, within a certain period established by the local government. Essentially, you have bought what can be an incredibly high interest loan from the local government! If you only receive the redemption payment, you've already made an excellent profit.

Let me make one thing clear: a tax certificate is not a deed. You are not buying the property. You are buying a debt, the opportunity to be repaid, with an excellent rate of return, by the property owner.

Now here's the best part…

If the property owner does not pay the prescribed amount by the end of a certain period, THEY LOSE THE PROPERTY! And almost always, the property is now OWNED BY YOU! Free and clear, with fantastic profits for little or no risk!

There are two different ways to buy tax certificates:

1. Buying tax certificates through auction at a public oral bid tax sale

2. Buying tax certificates “direct” from the local officials

I'll simply describe each technique in a step-by-step manner in the coming pages. Always remember that county and state governments all have their local rules and regulations, which can alter the way these tax sales work out. It's always in your best interest to look into local rules and regulations to discover the little details specific to each local tax system that can help you make huge profits at little or no risk!

I'll summarize each of the systems as before, with pros and cons and a final grade.

1. BUYING TAX CERTIFICATES AT ORAL BID TAX SALES

As we've established, the best type of tax sale to attend is the one where you're the only investor present. That way, you're free to purchase everything all the tax certificates you're interested in at the minimum opening bid, generally the cost of delinquent back taxes plus penalties, and administrative fees – usually under $5,000 for a property worth $100,000!

But what happens if there's more than one investor at the sale? Maybe you go to a sale in Arizona, excited to buy some excellent tax certificates, and there's Not-So-Smart Jimmy, who you ran into at the tax deed sale in Las Vegas!

If two or more investors want to buy the same tax certificate, there needs to be some mechanism in place to decide who gets the tax certificates. Generally, there are three types of bidding structures used by the various states that sell tax certificates.

Bidding Down Interest .

Each state sets a maximum interest rate permitted on tax lien certificates. Rates range anywhere from a relatively wimpy 6% to an amazing 24% return on your investment. In some situations, the rate of return on a certificate approaches an astronomical 300%!

In any case, one method of bidding for a tax certificate is bidding down the interest attached to the certificate. The basic price for the certificate remains the back property taxes plus any costs and fees, but bidders can competitively decrease the interest attached to the tax certificate.

EXAMPLE

Bidding Down The Price

You and Jimmy Not-So-Smart are interested in the tax certificate for a property in New Jersey, and you both decide to bid on it. The maximum interest rate on a tax certificate in New Jersey is a mouth-watering 18%, but Jimmy wants that certificate. He decides to bid 17%. This means that if he successfully purchases the tax certificate, and the property owner redeems the property, Jimmy will receive a 17% return, not an 18% return on the tax certificate.

However, you are very excited about the property, so you bid down to 14% interest. Jimmy lets it go at that. But, having again done your due diligence, you know something Jimmy doesn't.

The research you've done has revealed that the property's owner, a nice old lady named Burgess, passed away peacefully a number of years ago with no heirs and no one with a legal interest in the property. You don't expect anyone will redeem the property at all! So bidding down the interest for repayment in this case DOESN'T MATTER AT ALL! Since no one will be redeeming the property, no one will be paying the rate of return on the tax certificate, whether it is 50% or 2%!

In this particular case, since you know there will be no redemption of the property, the interest rate doesn't matter. The only thing that does matter is that when the redemption property expires, the property can be yours for the tiny price of the delinquent back taxes! Due diligence triumphs again! And you are in a position to receive huge profits for your relatively tiny purchase of a tax certificate for essentially the price of some back property taxes!

Bidding Up The Price

This bidding formula has the bidding start at the minimum price for the certificate – delinquent property taxes plus costs – and bids go higher from there. The price INCREASES as the bidding goes on. The bidding adds to the price of the tax certificate hundreds or even thousands of dollars!

The important thing to realize here is that not all states treat this surplus amount the same. One state might force the property owner to pay the surplus amount plus the interest, while another may declare that the property owner owes only the original amount of back taxes, and the investor has to eat the surplus. BE CAREFUL, and make even more sure you do your research and know the local rules before you jump into a bidding system like this. The opportunity exists to LOSE MONEY.

EXAMPLE

At a tax sale in a tiny county seat in a mountainous part of Colorado, you run into Not-So-Smart Jimmy again (at this point you wonder if he has some sort of tracking device secretly attached to you). There's also another investor at the certificate sale – we'll call her Impulsive Rhonda.

You buy a couple of tax certificates that are uncontested by the other two: it's possible the certificates will not be redeemed by the property owners, giving you the opportunity to acquire their property for a tiny fraction of its assessed value! If the property owners do redeem their property, you still get a magnificent return for your investment (Colorado's tax certificate interest rate fluctuates - in 1998 it was 14%!).

Not-So-Smart Jimmy and Impulsive Rhonda, however, get into a bidding war over a ski chalet. Jimmy eventually wins out by bidding$3,500, $2,500 over the cost of the tax certificate, which was $1,000. Not-So-Smart Jimmy is banking on the owner not redeeming the property, and if that happens, he still makes an excellent profit, the deed to the property.

However, if even a year later, the property owner redeems his chalet from Not-So-Smart Jimmy, he or she only has to pays Jimmy THE ORIGINAL $1,000 OF BACK PROPERTY TAXES PLUS, AS AN EXAMPLE 14% ($140!). According to the state laws of Colorado, Not-So-Smart Jimmy is responsible for the surplus bid, and he now is holding a loss of over $2,000!

Bidding Down Percentage Ownership

The bidding process in these states proceeds with the bidders competing against each other, with the winner agreeing to accept the SMALLEST percentage interest in the property. So the bidding for a tax certificate starts with the property offered as a whole, a 100% undivided ownership. A second bidder would agree to accept less ownership, let's call it 99% ownership. The remaining 1% is shared as something called a tenancy-in-common with the original property owner. If the property is redeemed, none of these percentages matter, and you make a hefty return on your investment.

However, if the certificate, and therefore the property, is not redeemed, the bidder DOESN'T HAVE COMPLETE OWNERSHIP OF THE PROPERTY. It's not that the bidder owns 99% of the property area and the property owner only owns that bush over there. Tenancy-in-common means you can't sell the property without:

(a) the permission of the foreclosed-out owner (someone who may not be inclined to cooperate with you); or

(b) a drawn out legal proceeding called a “partition” action

In any case, tenancy-in-common of a piece of property gained through bidding down percentage ownership is quite a can of worms. Be VERY LEERY of bidding down percentage ownership at tax sales using this system.

EXAMPLE

In Iowa the rate of interest on tax certificates is a phenomenal 24%! Worth taking a look at, certainly. However, most counties in Iowa do use the bidding down percentage ownership system at their tax sales, so you resolve not to get involved in any competitive bidding. Not-So-Smart Jimmy, however, is very excited about a house down by the river, and he bids down on that property's certificate to 65% ownership.

If the owner redeems the property, Not-So-Smart Jimmy gets a 24% return on his investment! However, the owner of the house, an ornery old Iowan named Mabel Cheeseharker convinces some of her relatives to help her out. She raises enough money to pay the price of the certificate – delinquent property taxes plus costs – and the 24% interest to boot! She has redeemed her property, and now Not-So-Smart Jimmy is tenant-in-common to a very nice house in Iowa occupied by a very stubborn old Iowan, who is the other part owner.

However this turns out, it will take a long investment of more time and money on Not-So-Smart Jimmy's part to resolve it, time and money better spent finding fantastic real estate profits at little or no risk!

Meanwhile, you make off with a number of uncontested tax certificates, two of which eventually are not redeemed by the property owner, providing you with a fantastic, UNDIVIDED, profit on your very secure investment!

PUBLIC ORAL BID TAX CERTIFICATE SALES REPORT

PROS & CONS

PROS

Huge Interest Rates .

Many states offer absolutely astonishing rates of return on tax certificates. Many states offer double-digit interest rates on your investment, as much as 24% in many places! This rate eclipses the rate of return you could achieve with more mundane instruments like IRA's or the bond market, and, with quick turnaround times on the rates of return, your money is active, constantly being reinvested even better returns!

Of course, attractive as it might seem, this is only the consolation prize. The jackpot is:

PROPERTY OWNERSHIP

This is the true goal. After the period of redemption passes with no one redeeming the property, in most states tax certificates can be converted into UNCONTESTED ownership of the property they were a lien on! Which means that for a tiny fraction of the value of the property, delinquent back taxes and costs, you can secure ownership of valuable properties!

First Lien .

It still holds true here that many state governments consider a property tax lien the priority lien on a property, meaning that all other outstanding debts are wiped off the board, giving you free and clear ownership of the property.

Free and Clear .

Generally, once you have the deed in your hand, it's yours. No messy contact or litigation from previous owners.

Great Equity .

A first lien wiping out all secondary liens on the property means it's very possible to acquire HUGE equity in the property secured by the tax lien, upwards of 95% EQUITY!

Lack of Popularity .

While purchasing tax certificates is becoming more popular, many traditional real estate investors still wish to buy deeds to property up front, through public oral bid auctions. They are leery of the fact that you're purchasing a “certificate,” not the actual deed to the property, and they don't like the redemption period attached to certificates.

This is great thing for a savvy investor like you, because those people who don't want to invest in tax certificates means less competition! This gives you a better chance of finding sparsely attended sales where you can swoop in and buy certificates UNCONTESTED, allowing you to purchase what you want to purchase at the absolute MINIMUM BID, back property taxes plus minor costs and fees! And what do you get for that minimum bid? The chance to acquire the property attached to the tax certificate!

CONS

Competition .

Competitive bidding can have all sorts of impact on the price of the certificate. Bidding down interest or property ownership and bidding up price can mess with your profits! Do your due diligence. Know the local rules and customs BEFORE you start bidding.

Redemption Period .

The property owner does have a period of time to redeem the property, BUT there are positive aspects to this situation. If they do end up buying back the lien, you are entitled to a generally excellent rate of return due to the interest rate attached to the certificate! You and I would prefer the property, but not a bad consolation prize. All the more reason to do your research, to try to discover certificates less likely to be redeemed!

SUMMARY

For the savvy real estate investor, purchasing tax certificates at annual tax sales offers opportunities for truly outrageous profits for pennies on the dollar at little or no risk! The only wrinkle here is that less competition is always better. Public bidding practices in various states can quickly turn fantastic opportunity into an unattractive adventure, limiting your chances to make huge profits on a tiny investment at little or no risk.

FINAL GRADE: A-

NOTE : These three bidding processes are predominant through states that participate in selling tax certificates. A few states use other systems, including:

Random Selection .

In much of Wyoming and certain counties in Colorado and Idaho, local tax officials use a random selection system to decide who gets to purchase a tax certificate, with no bidding!

What does that mean? You therefore get the opportunity to buy a tax certificate without being subject to any bidding down of interest or percentage ownership of the property, or bidding up of the price. So someone will walk away with a tax certificate to a property purchased at the minimum bid, or back property taxes plus costs

However, that person may not be you. A random selection system doesn't affect the yield or the security, but it does affect your ability to purchase the tax certificate you are interested. Just do the math. If there are 50 investors at a particular tax sale selling 50 certificates, your chances are one in 50 to be able to purchase ANY tax certificates! Luckily this system is not used in a wide array of states.

First Come, First Served .

This is an excellent system for early birds! Essentially, the first “bidder” to arrive at a tax sale gets the first right to purchase or not purchase any tax certificates being sold that day! Kentucky state law uses this system. In Montana it effectively works out this way, due to low attendance at annual tax sales, although in a couple of the more touristy and vacation-destination counties, people have been known to stand in line all day at the sale waiting to buy their certificates!

SECTION 4

Buying Tax Certificates “Direct”

Alabama, Arizona, Colorado, Florida, Kentucky, Maryland, Montana, Nebraska, North Dakota, Oklahoma, South Carolina, South Dakota, Wyoming.

If the exciting bidding atmosphere of public auctions isn't your thing, or if you prefer an EVEN MORE effective procedure for buying tax certificates, buying tax certificates direct or “over-the-counter” is probably an excellent solution for you. In my opinion this is the MOST EFFICIENT method to achieving the final goal, attaining property at a fantastic profit for a tiny investment at little or no risk!

Often tax sales can be excellent sources of opportunities to acquire the rights to real estate properties for a minimum bid of back property taxes and related costs, but sometimes even the most savvy real estate investor can have the deck stacked against them at public oral bid tax sales. Other investors bidding your profits away, or strange local customs can prevent you from reaching the promised land of gigantic profits!

I have the perfect solution for this problem: buying tax certificates “direct” from the local tax authorities!

In most tax certificate states, if no one buys a certificate at the annual tax sale, that certificate can be purchased over-the-counter after the sale from local tax officials at the MINIMUM OPENING BID (delinquent real estate taxes plus costs) on a FIRST-COME FIRST-SERVED BASIS. It's like having your own private tax certificate service!

Here's how this system works…

In most states if a tax certificate is not bought at the annual tax sale, it is sold to the state or the county. In most states, any certificate sold to the state or the county can be purchased from the country throughout most of the rest of the year.

This is where the terms “ direct ” and “ over-the-counter ” come from. The purchase is “direct,” as it is not contested by other bidders. It is “over-the-counter” because you walk into the local tax officials office and buy the certificates (this is exaggerating a bit, but not much) like you buy coke and chips at the local grocery store! There's no sticker shock, as the price is almost always fixed at the minimum opening bid of back property taxes and fees.

There's also nobody grabbing at that last bag of Cheetos or that tax certificate that you really want, because sales are generally performed on a first come, first-serve basis. If you're at the counter, you're the only person the tax official is going to be talking to about buying any specific tax certificates!

And finally, if any of those tax certificates are not redeemed by the property owner, you will generally get the title to a completely undivided real estate property at that minimum bid of back property taxes and assorted minor costs!

SHORTER REDEMPTION PERIOD

Speaking of the period of redemption, there another excellent hidden aspect to buying tax certificates direct from state or local tax authorities. As the investor, you can SIGNIFICANTLY REDUCE the redemption period of any tax certificates.

As you know, tax certificates are encumbered by a redemption period. During that period of time, which can last anywhere from months to years, the property owner can redeem their property for the price of the certificate, plus the appropriate interest rate assigned to the certificate by the state (sometimes over 250% !).

However, generally, if a tax certificate is not sold to an investor at the tax sale, and instead is bought by the state or county, the redemption period begins counting down.

In other words, as soon as the tax sale is over, THE CLOCK STARTS TICKING. If a state's redemption period for a tax certificate is one year, the property owner has one year from the date of the tax sale to redeem the property from the state.

If, however, you purchase the tax certificate from the local tax officials later in the year after the tax sale, the redemption period still BEGINS ON THE DATE THE STATE TOOK POSSESSION OF THE TAX CERTIFICATE!

EXAMPLE

You've grown tired of Not-So-Smart Jimmy. Tired of him bidding up the cost of your certificates, or even worse, bidding down percentage ownership, ruining the chances of perfectly good properties bringing you fantastic profits at little or no risk! So you try a new strategy.

The local tax sale for Ward County in Minot, North Dakota takes place every year on the third Tuesday of November. You don't go. You wait nine months, avoid the six-foot winter snowdrifts in Minot, and in balmy August of 2003 you saunter into the office of the Ward County Auditor/Treasurer. No Not-So-Smart Jimmy in sight. However, there are still quite a few tax certificates for sale from the tax sale in 2000 (the year is important; I'll tell you why in a minute).

Equipped with your due diligence, you have already targeted some excellent properties, and since there is no competitive bidding, you buy them all at the minimum rate. Not a bad day's work, huh? Here's the fun part.

North Dakota's period of redemption is three long years. If you bought those certificates at the tax sale in 2000, you would have used them as shim for the sagging dining room table for three years before you could be assured that the owner of the property could not redeem them from you. Three years of waiting to see if your investment came through.

HOWEVER, since you are purchasing (or being “assigned”) those tax certificates from 2000 in August of 2003 , the period of redemption isn't three years. IT'S THREE MONTHS.

North Dakota state law recognizes those certificates as “having the same force and effect as if such certificate had been issued on the date of sale.”

In other words, the clock on those 2000 certificates started ticking almost three years ago, they haven't been redeemed yet, and you'll know in a few short months whether or not you are entitled to some amazing pieces of property for a tiny investment at little or no risk!

So, as you can see, another advantage of buying tax certificates direct is that you can SHORTEN THE REDEMPTION PERIOD, which allows you to possibly reach much more quickly the primary goal of this course: ACQUIRING PROPERTY AT A TINY FRACTION OF ITS ASSESSED VALUE, AT LITTLE OR NO RISK!

BETTER SERVICE

If that's not enough of a reason to skip public oral tax sales when you can, here's another reason. In states where you can buy tax certificates direct, if you purchase certificates at a time removed from the annual tax sale, the staff of the local tax office will be much more inclined to help you.

Tax sales are buy times in local tax offices. Staff is more likely to be frazzled, uncommunicative, in a hurry. If you approach the local staff, who have an intimate knowledge of the tax certificates and the properties related to them, at a time removed from the public tax sale, you can get a lot of your due diligence done right in their office.

I'll talk more about this in the tools and tips section, but local staff can be an absolute treasure to you in your search for amazingly profitable properties.

a) they may know which certificates are more likely to clear the redemption period, providing you with the property itself, as opposed to the redeemed tax certificate!

b) they very well may have a local's knowledge as to which local areas and properties are the most valuable.

c) they might be willing to help you out with the little details – adding up a certificate's correct price and interest, locating properties on a street map, or just sending you to the best coffee shop in town!

BUYING TAX CERTIFICATES DIRECT OR

“OVER-THE-COUNTER”

PROS & CONS

PROS

No Competitive Bidding .

At public auction tax sales, especially in counties with large populations, competitive bidding from other investors can drive up the price of the certificate, CUTTING INTO YOUR PROFITS or even splitting the property into pieces much more difficult to re-sell or do anything else with.

If buying over-the-counter, you will usually be asked to pay the minimum bid (back property taxes, plus costs) for the full, undivided property, no more!

First Come, First-Served .

Buying direct from local tax officials, as opposed to at the public tax sale, means no lines, no random selection, no other investors around to cloud the issue. You walk in (or even call on the phone!), and choose from the array Since there is no competitive bidding, there is no difficulty in acquiring the tax certificates you want.

Year-long Access.

Some states hold each and every annual county tax sale on the same day of the year. Again, do the math. Unless you own some sort of science fiction cloning device, there's no way you can be at tax sales for fifty counties if all of them take place on February 7! If you have a fast car, you might be able to make two. One day out of 365 in a year severely limits your opportunity window to acquire tax certificates that could lead to you owning property at a huge profit (for little or no risk, right?)!

However, in most states that use this system, if a tax certificate is not sold at the annual tax sale, it is sold to the state or country. And, in most states, a savvy investor like you can buy any certificate sold to the local government almost year-round! If you buy tax certificates over-the-counter, you can MAXIMIZE YOUR PROFIT OPPORTUNITIES by being able to buy tax certificates on many days in many counties throughout the year, as opposed to just one.

Shorten the Redemption Period .

Instead of buying tax certificates at a local tax sale and waiting the entire redemption period to find out whether you can take possession of the property the certificate holds a lien over, buy the certificates direct. As time lengthens into the redemption period, it becomes less and less likely that a property will be bought back, or “redeemed.”

In many states you can buy tax certificates from local tax officials over-the-counter far into the redemption period, sometimes shortening your wait to a few months. In some cases, you can start the process of obtaining a tax deed to the property immediately!

Better Service .

Local tax staff is far more likely to be helpful and non-frazzled when selling certificates over-the-counter, as opposed to during the mayhem of a public oral bid tax sale.

CONS

Geography .

Many states sell tax certificates over-the-counter, but not all of them. If more did, you and I would have even greater opportunities to acquire fantastic properties for a tiny investment at little or no risk!

FINAL GRADE : A+