Tax lien is the lien imposed on
the delinquent property by the federal government. Once lien is issued on the
property, it is auctioned for the sales to the interested investors. Investors
will bid and the investor with highest bid will win the auction. It is
necessary for the investor to know about the bidding method of the tax lien
sales. There are many types of bidding methods of tax lien sales in U.S, but
the premium bidding and percentage bid down bidding methods are the most
commonly using bidding methods. We will be discussing below about these bidding
methods also some of the other methods.
Premium Bidding Method:
In this bidding process each
property has an initial or minimum bidding amount, Investors and auctioneers
can start their bidding from the minimum amount and the highest bidder will win
the bid. The amount which is raised above
the minimum bid amount is referred as premium. For example, the minimum bidding
amount is $100 and it auctioned to the amount of $110, means the premium amount
is the difference of two amount , i.e. $10. In tax lien sales, the premium is
not recouped by the investors.
Percentage Bid-Down bidding method:
In this method, the bid amount is
finalized initially before the bidding and it will never change during the
bidding. What does happen is only the percentage rate of interest on the
bidding amount is lowered. The investor with lowest rate of interest will wins
bidding.
Other bidding methods:
Rotational bidding: In this method, the registered investors are given
bidder numbers according to the number they can participate in auction. The
minimum bid and the rate of interest remains unchanged during the bidding. This
process starts with the first investor in the auction, if they not interested
in that property, it is forwarded to the next investors in the auction like
this the auction goes on until the tax lien property is taken by
someone.
Percentage Bid-Down then Premium Bidding: This is a hybrid bidding
process, where the bidding process starts with Percentage Bid-Down method, if
the bid rate goes to 0% then the bidding process is changed to the premium
bidding process.
First to bid Tax Amount: Here the “first come first served”
principal is used. The first person who pays the full amount of the bidding of
tax lien sales is the winner.
