Posted by Courtney Lane on Tue, May 08, 2012
The Iowa Tax Sales are fast approaching and it is one of my favorite sales. With a 24% per year inte
rest rate, good inventory in 99 counties and less bidders than other states, it should be one of your favorites too.
Most of the Iowa Tax Lien Sales are held on the 3rd Monday in June. A few counties will postpone their sales a day or two, but for the most part they all take place in a one – three day time span. This can make it challenging to attend more than one sale in the state, therefore making your pre-sale preparation and due diligence even more important.
Why I Like Iowa Tax Lien Sales:
As I mentioned earlier Iowa is one of my favorite states to buy liens in, due to the very high interest rate of 24% per year, or 2% per month or any part of a month.. The state also tends to have a very good redemption rate. There are 99 counties in the state so it is pretty easy to find a number of counties with a fairly low number of bidders.
Iowa Bidding Method:
The “official” method of bidding is on a “percentage of ownership” basis (the person willing to take the smallest portion of ownership in the property wins the bid), the rate is always 24%. In reality the “percentage of ownership” bidding rarely is the method used, but rather a round robin method is used. This means that you will get 100% ownership interest and a 24% return. This is a very good deal!
What is Round Robin Bidding?
Round Robin Bidding is a method used by a number of different jurisdictions and is a fairly simple concept. Basically they go around the room in a fixed order and each person is given the opportunity to the buy a lien. You pay just the delinquent taxes (plus any penalties, interest and/or costs) for the lien. Assuming you are seated in an auditorium environment, they would start with one row of seats and go down each seat and offer a lien to you. It is always your choice, you can say yes I will buy it, or no, I pass.
Importance of Public Land Survey System in Iowa:
Anyone going to bid at a Tax Lien Sale in Iowa should become familiar with the Public Land Survey System. This is how the properties are described on the tax sale lists provided. It is crucial that you understand the system and how it works. Also keep in mind, the publication of the lists can be as little as seven days prior to the sale, which does not leave a lot of time to do your homework.
Tips:
In Iowa it is important to understand that if you do not purchase subsequent taxes a new lien will be sold and the new lien buyer may redeem you out. Subsequent taxes earn 2% for any part of a month from the date of payment.
If you would like more information about how the Iowa tax lien sales work, click here and download our white paper on Iowa.
Posted by Courtney Lane on Tue, Apr 17, 2012
Florida is by far the largest sale of any state. In recent years they have sold well over 600,000 tax liens, one year reaching over 800,000.
The tax lien sales in Florida occur during the month of May, usually starting about the 7th and continue through the 1st of June. Every county has to complete their sale by June 1st.
Most of the counties now do their sales online. The two major companies doing the online sales are RealAuction.com and GrantStreetGroup.com. Between them they have 40 sales online (27 by RealAuction and 13 by Grant Street Group). There are a few other of the 67 counties that have sales on line.
The online sales allow you to bid on properties without going to Florida. This is a great benefit as long as you know how to get the due diligence on the properties, which can be done online now a-days.
The online tax lien sales are done in the following manner:
The online tax lien sales are done in the following manner:
1. You are given a period of time to enter your bids prior to the sale. Usually this runs from 10 days to 14 days.
2. The sale itself takes very little time because the winning bidder is determined instantly by computer.
3. In Florida the tax lien is sold to the individual who is willing to accept the lowest interest rate on his investment. Bidding starts at 18% and goes down from there. In years past you saw bidding as low as 1/4 of 1% interest rate - a rate that seems incredibly dumb, but there is a reason they went that low. In Florida you get the interest rate you bid, or a 5% penalty (known as the fast five), whichever is more.
A penalty is different than an interest rate.
Let's assume the tax lien is $1,000.00. If you made 5% interest on $1,000 for 30 days, you would make $4.10. On the other hand, a 5% penalty on a $1,000 is $50.00. Even if the lien redeems in 30 days. People would bid 1/4 of 1% interest if they were betting that the lien would redeem in 30 to 120 days. If it did, they made the following return:
· Redeems in 30 days - annualized rate of return is 60.83%
· Redeems in 60 days - annualized rate of return is 30.42%
· Redeems in 90 days - annualized rate of return is 20.28%
· Redeems in 120 days - annualized rate of return is 15.21%
The risk here: if the lien doesn't redeem for 18 months, your return is less than 3%.
In recent years, since the sub-prime mortgage crisis, most people have been bidding levels for decent properties in the 8% to 14% range.
You never get the property just from buying a tax lien in Florida.
Repeat - You never get the property just from buying a tax lien in Florida.
If the property does not redeem, it is sent to a tax deed sale and the minimum bid is what you are owed on the tax lien. Let's assume that you are owed $1,235 on your tax lien. That becomes the minimum bid on the tax deed sale. If somebody bids $1 more than that amount they can buy the property and then sell the property to whoever is willing to pay the most for it. You can bid also, but you don't have to pay the first $1,235 of your bid since you are owed that amount on the tax lien. If nobody bids on the property, then you become the owner and stand to make a handsome profit.
Download our Florida tax sales guide to learn the ins and outs of Florida tax sales.
Posted by Courtney Lane on Wed, Apr 04, 2012
What is a Tax Sale?
Our next couple of blog posts, will go back to the basics. This post will start at the beginning, to discuss & define, what is a tax sale?
In almost every state in the country you have the opportunity to acquire real estate for below market value – how far below market value will depend on the state but in some instances it can be for pennies on the dollar.
The stories are legend about houses being purchased for $300 to $5,000 or commercial strip malls for $20,000 that are worth $5,000,000. While these stories are true, it is not the reason we are suggesting you get involved in tax sales. We want to teach you about the opportunities tax sales provide you to make consistent money, year in and year out, as well as the chance to hit the home runs.
Tax Sales occur when the taxing jurisdiction is not paid the real estate taxes that are due. The taxing jurisdiction relies on this money to pay for the local services we all use, like public schools, libraries, street maintenance, aid programs, the administration of the municipality and emergency services to list a few. If the taxing jurisdiction does not receive this funding from property taxes, the rest of us have to make up the shortfall. Achieving this can be done in a number of ways, but the most common is for the taxing jurisdiction to plan for delinquencies and to make the tax rate higher to compensate for the expected delinquency. If this is done, then we all pay more to make up for those who have not paid. Since tax delinquencies on a national basis run around 2.5% to 3.5% that means your taxes are 2.5% to 3.5% higher than they could be.
To discourage delinquency the taxing jurisdictions do a number of other things. First and most common is to make it punitive to not pay your taxes. This starts with penalties and interest charges for late payments and if you still don’t pay they arrange for you to lose your property to someone who will pay the taxes. This is done through the tax sale.
This seems like a simple definition for a tax sale, right? However to answer, what a tax sale is, is really not as simple as this, since it depends on where you ask the question. Every state in the country has a mechanism to collect delinquent taxes, but no two states use the exact same method. This means there are 50 different answers. However, the question can break down to two main answers:
1. Tax Lien Sales: Tax sales that offer the owner of the property some method of saving his property (or redeeming the property).
2. Tax Deed Sales: Tax sales that are final, meaning the home owner looses possession of their property.
Our next post will discuss "What a Tax Lien Is?"
Posted by Courtney Lane on Tue, Jan 17, 2012
In this post we want to discuss an interesting niche in the tax sale industry that we have discussed briefly before, but one to discuss in more detail due to it's amazing income potential.
As we have mentioned before, there are several ways to participate in the benefits of tax sales without actually attending a tax sale. There are a lot of people, because of their work schedules, lack of time, ability to travel or the lack of capital, who may not be able to attend tax sales. If you fall into one of those categories; you will definitely want to pay close attention to this strategy.
During John’s active involvement in tax sales he became very familiar with the unique laws and statutes in many states as to the selling of tax liens, he became aware of a potential opportunity to create a win/win income generating money for property owners as well as him.
Specifically, we are referring a strategy we call overbid refunds or fast cash.
SO HOW DOES IT WORK?
Like tax sales there are a variety of approaches you can focus on in this strategy. A simple example is that over $38,000,000,000 is owed in the United States to people like you and me. Most of this money will go uncollected, simply because people do not know it is out there. There is a good chance that you, or one of your family members is due some of this $38 billion. You can make money, simply by collecting the funds owed to you, or you can collect the money for others, for a finders fee. It is simple and easy and we can show you exactly how to do it.
Another example we have discussed before is tied to tax lien sales, however this strategy can be applied to tax deed sales as well. There are several states that sell tax liens in a bid up process know as a Premium Bid. This is where the face value of the lien is bid up and won by the highest bidder. On quality properties, it’s not uncommon to have these liens bid up to 50% or more of the property value. In other words, if there were a $100,000 property that had $2,000 in delinquent taxes, it is very possible for that lien to sell for $50,000, especially if there is interest paid on the over bid or premium amount.
This type of over bid includes states such as Indiana, South Carolina and Alabama. Let’s assume our example above took place in Indiana. This is a very common occurrence in Indiana because an attractive interest rate is paid on the overbid amount. We all know what happens if the lien is redeemed – the lien holder gets their principal back with a handsome return (they would receive the amount they bid, $50,000, plus interest on the $50,000). In this case, let’s assume that the property does not redeem –what happens to the $48,000 that was bid above and beyond the original tax amount? If the delinquent owner loses the property (and only if he/she loses the property) then the delinquent property owner is entitled to the $48,000. The county get to keep the over bid if it is not claimed by the delinquent property owner.
This creates a classic example of a conflict of interest – the county certainly would like to keep it but the laws dictate that the over bid amount must be returned to the original property owner.
At least in theory, the money should be returned, but how often does it really happen?
The fact of the matter is, in Indiana, the property owner has two years to claim the overbid funds. The way the property owner learns about his right to claim those funds is by having the county notify him. This presents another interesting conflict of interest. The county stands to benefit if the money is not claimed – they get to keep it. Nevertheless, they are supposed to notify the property owner that he has a right to claim the over bid funds. The sum total of what most counties do to notify the previous property owner of their right to the money is to send a first class letter to the address where they used to live (but no longer live). Many previous property owners do not leave forwarding address and in almost all cases they are unaware they are entitled to the money. Is it, really any wonder why so many of these individuals never make any attempt to recover what is owed to them? They never received any notice that they are owed money. This is where you come in and help them and make yourself so money as well.
Posted by Courtney Lane on Fri, Jan 13, 2012
Arizona is one of the favorite states of tax lien investors. There are a number of reasons for this. Probably the major reason is the large number of liens offered. With only a few number of counties compared to most states, the Arizona counties have very large sale lists. Maricopa County (the Phoenix area) has well over 20,000 parcels in their sale.
Interest Rate: The state offers a potential rate that is attractive, being 16% per year, or more accurately, 1.333% per month, paid for any part of the month the lien is outstanding. The actual returns earned are quite a bit lower, averaging just below 11.00% for the past couple of years (see statistical averages in appendix).
Warnings: There are a couple of things we typically caution investors about Arizona Sales.
1. There are a number of liens offered for sale each year that are vacant, unimproved parcels that consist of little more than cactus and Gila monsters, with no roads or utilities.
2. There are also some liens and easements that are not extinguished by a tax lien going to deed. Specifically:
- The sale of a real property tax lien does not extinguish any easement on or appurtenant to the property.
- The sale of a real property tax lien does not extinguish any lien for an assessment levied pursuant to title 48, chapter 4, 6 or 14, or section 9-276.
3. The auctions take a number of days in the larger counties and attract anywhere from 30 to 250 bidders. The larger institutional bidders are fairly well represented and fairly aggressive in their bidding.
The bidding method: The bidding method in Arizona is the rate bid down method starting at 16% and bidding down in 1% increments at most auctions
Redemption Rates: Based on the statistical report in the Appendix, the redemption rate after five years is approximately 93% on all liens sold. It can be assumed that the redemption rate on improved properties is substantially higher and the redemption rate on unimproved properties is substantially lower.
Due Diligence: Having either bid in the Arizona sales or prepared due diligence for bidders in the Arizona sales for a number of years I cannot over emphasize the need for good due diligence. The lists published by the most of the counties have no physical addresses for the properties, so it is necessary to get the situs addresses and determine location of the properties. Each of the cities, like all cities, have undesirable areas that you may want to avoid. The reason I say may, is that I have found that good properties in bad areas are not necessarily a bad investment. Again, I strongly suggest that you attempt to look at as many properties as you can. If you follow the due diligence process that we suggest in our training manual you will avoid most mistakes.
Assignment Purchases: Arizona does have assignment purchases, sometimes known as “over the counter” purchases. These are liens that did not sell in the regular sale and are available for any purchaser approximately three weeks after the sale. A couple of notes of caution. They did not sell in the auction for a reason. The reason was not, and is not, that there were not enough buyers at the sale. The reason they did not sell, in most cases, is that nobody wanted them. A second not of caution is that the first day that assignment purchases are available there is a line around the block in Maricopa county of people who want to buy what is left. All I am trying to say is that you should be very careful of your when you are doing assignment purchases and make sure that you know what you are buying. I would never do an assignment purchase without personally seeing the property.
Subsequent Taxes: Subsequent taxes are fairly important in Arizona. If you do not pay the subsequent taxes (the taxes due after you have purchased the lien) they will be offered in the next sale and you may lose your position in the lien. The new buyer has the right to redeem you out. This may not be a bad situation if you have made a mistake and want out, but it will end any chance of getting the property. Keep in mind that paying the subsequent taxes will entail increasing your investment in the property three fold over the next three years.
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If you would like more information about the upcoming Arizona Tax Sales
CLICK HERE to receive our Arizona Whitepaper.
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Posted by Courtney Lane on Wed, Dec 28, 2011
Tax Liens & Tax Deeds can both be very profitable to investors. In this blog we are going to compare the real cost of purchasing a tax lien versus a tax deed, as well as the potential profits. But first we will review what a tax lien and tax deed is:
A. Tax Lien: A lien on real estate in favor of a state or local government which may be foreclosed for nonpayment of taxes. A tax lien can be imposed by the state, county, city or town, water district, school district, port authority or district, park district, sewer district, hospital district or any other entity of government authorized by statute to levy taxes or special assessments.
B. Tax Lien Sale: A tax lien sale does not give the lien buyer ownership of the property. It gives the buyer a claim for money that is superior to almost all other liens, including mortgages and is secured by the real estate. If this claim for money is not satisfied the lien holder can apply for and receive the property, subject to the conditions set by the statutes for the jurisdiction. Approximate redemption rate for residential properties is somewhat above 90% in most jurisdictions.
A. Tax Deed: A tax deed sale give the buyer immediate ownership of the property. This ownership often requires the filing of a quiet title action to have marketable title but it is not subject to redemption by the delinquent tax payer.
B. Tax Deed Sale: Tax sales where the property is sold outright.
Now let’s compare the costs of buying a Tax Lien verse a Tax Deed. The numbers below are based on averages, since every state has different fees that apply. 
Tax Lien example:
Lien Cost $1,592.61
Redemption: 2 years
Market Value: $100,000
Cost of Tax Lien until Acquiring Property (including “fixing up” costs):
- Initial purchase of Lien $1,592.61
- Subsequent taxes at end of year one $1,592.61
- Subsequent taxes at end of redemption period (year two) $1,592.61
- Title search (done after lien acquired and after year one) $ 85.00
- Noticing of parties in interest (from title search) 9 at $25.00 ea. $ 225.00
- Legal expense to get the property (varies by state) – est. avg $3,500.00
- Average cost to fix up (paint, carpet, etc.) $3,000.00
Total costs to acquire and fix up property with tax lien acquisition $11,587.83
If you sell the property (quick sale) for 70% of market value with a quit claim deed for $70,000.00 your net profit would be $58,412.17 or a return of investment ( 2.5 year holding period) is 201.63% per year.
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Cost of Tax Deed Acquisition:
Tax Deed example:
Winning Bid: $70,000
Redemption: None
Market Value: $100,000
- Initial purchase of Tax Deed Property at 70% of Market Value $70,000.00
- Average cost to fix up (paint, carpet, etc.) $3,000.00
Total costs to acquire property with tax Deed acquisition $73,000.00
If you were to sell the property at 100% of market value through a realtor your net profit would look like this:
Sell property at 100% of market value through realtor $100,000.00
Less realtor commission (6%) $6,000.00
Net profit $21,000.00
Return on investment (6 month holding period) per year 57.53%
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Comparison of Lien vs Deed : Using favorable assumptions on behalf of the tax deed investment the tax lien investment is still four times more profitable
Tax Lien Investment Tax Deed Investment
- Cost of Property $11,587.83 $73,000.00
- Realtor Commission n/a $6,000.00
- Proceeds of Sale $70,000.00 $6,000.00
- Net Profit $58,412.17 $21,000.00
- ROI 201.63% 57.53%
CLICK HERE to watch John Lane's video on the profit analysis of purchasing tax liens vs tax deeds.
Posted by Courtney Lane on Wed, Nov 16, 2011
The possibility of a 36% return on your investment is why South Carolina is such a great Tax Sale for investors. The state also offers one of the shorter redemption periods in the country. The Tax Lien Sales are coming up in the fall, so now is the time to start preparing.
Why We Like South Carolina Tax Sales:
South Carolina is a Tax Lien state which holds their sales annually in the fall. They offer a one year redemption periods. It is a popular state for tax lien buyers for several reasons.
One is the rate. Although not one of the highest rates, it’s nature is such that it should usually provide a return on investment greater than 12% and could return as much as a 36% ROI if the lien redeems in the first month. The return for redemption at the end of each month of the one year redemption period is as follows:
- Month one 36.00%
- Month two 18.00%
- Month three 12.00%
- Month four 18.00%
- Month five 14.40%
- Month six 12.00%
- Month seven 15.39%
- Month eight 13.50%
- Month nine 12.00%
- Month ten 14.40%
- Month eleven 13.08%
- Month twelve 12.00%
Another nice aspect of South Carolina is that the County does most of the work for you in that they do the noticing. You will find a large number of mobile homes on the South Carolina tax sales. You are entitled to collect rent from the owners of mobile homes in addition to interest. Just remember that first word, “mobile”. They can and do disappear.
South Carolina Bidding Methods: The bidding method is the highest and best bid, meaning that the lien is sold to the individual willing to pay the most for the property. The full interest is earned on the full amount of the bid, including surplus or overbid, and the surplus or overbid is returned to the lien buyer upon redemption. There is an exception to this in that the interest you earn cannot exceed the amount the Forfeited Land Commission would bid for the property. This means that you can bid 8.33 times the amount of taxes and make the full return on your investment. Any bid above that amount will reduce your return.
Importance of Due Diligence: As in all states, I cannot over emphasize the need for good due diligence. The lists published by the most of the counties have no physical addresses for the properties, so it is necessary to get the situs addresses and determine location of the properties. Each of the cities, like all cities, have undesirable areas that you may want to avoid. The reason I say may, is that I have found that good properties in bad areas are not necessarily a bad investment. Again, I strongly suggest that you attempt to look at as many properties as you can. If you follow the due diligence process that we suggest in our training manual you should avoid most mistakes.
If you would like more information about the upcoming South Carolina Tax Sales, click here and download our whitepaper on South Carolina.
Posted by Courtney Lane on Wed, Sep 21, 2011
This one is worth repeating. If you know anything about John Lane & TaxSaleLists.com you know how important the due diligence process is! How do you determine which properties to bid on at a government tax sale? The answer is simple, you need to do your homework, or as we call the process due diligence. Due diligence is at the heart of making profits from tax sales. While we spend a significant part of our complete success training program discussing due diligence, we wanted to give you a brief overview.
The process of due diligence is not complicated and we will break it down into three easy main steps to help you succeed:
1. Get the list of properties: There are a variety of sources you can use to get this information:
- Call the taxing jurisdiction: Sometimes the local jurisdiction will provide you with a list (however not all will, but if they do this would be your cheapest means of getting the information).
- The local newspaper: Counties are required by law to publish the tax sale list information. That does not mean it is be easy to locate. The other issue with using the lists from newsprint is they are very difficult to manipulate.
- TaxSaleLists.com or another list source that will provide the list in Excel: We provide over 10,000 lists across the country in an excel spreadsheet which can be easily manipulated and sorted based on your specific criteria. Frankly it saves you a lot of time.
2. Eliminate the properties you are not interested in – you do not want to spend time on anything you have no interest in.
- Property Type: Remove all the property types you are NOT interested in (ie, land, commercial, multi-use, single family).
- Lien Amount: Remove all the property lien values that do not meet your capital or financial requirements.
- Lien to value ratio: If you have the assessed values of the properties, you can determine the lien to assessed value percentage and remove any properties that are outside of your specific criteria.
- Improved to total value ratio: Similar to above, you would focus on the percentage of improved value to total value.
- Your own criteria: Anything you are specifically interested in – zip codes, areas, towns, etc…
3. Get the information you need on the properties you are interested in. There are a variety of ways to do this:
- Assessor’s office (or web site): They will provide detailed information about each property. It is the one good source for this kind of information within each jurisdiction. If they provide a website you can do this online from your house.
- Commercial programs: Lexus nexus, First America Real Estate Services, Data Quick. These services will cost you, and are not necessary (since the assessor’s office will provide the information you need), however if you can afford it, they will save you the time.
- Eyeball the property: In person, online or through a third party. You DO NOT need to view properties in person. There are a number of great ways to view properties and neighborhoods online.
- Rate the properties: We discuss a rating system in our training program, however this can be anything type of system you establish based on your interest.
Posted by Courtney Lane on Thu, Sep 08, 2011
Indiana’s tax sales are coming up soon. A number of our student’s have done VERY well in the state, and it is a popular state for tax lien buyers for several reasons.
1. It is a “highest and best bid” state, so it is possible to put a fair amount of money to work.
2. The redemption period is short and recent changes in the law have made the state more attractive to lien buyers.
3. The rate is not one of the highest, but it is possible to make a fairly attractive return.
However, it is also possible to make errors that can cost you all your money. While we believe knowledge is power, thus an educated prospective investor has a better opportunity to make a profit, Indiana is a state that REQUIRES you to do your research.
A number of counties will tell you the address they publish for the property is the “nearest address to the property.” Another negative is that some counties have gotten cute and wait until the tax sale is over to issue “demo” orders. This is something that you want to check on and see if the county does this as a policy. One recent change to the law is that you can now redeem yourself out of a problem. Let’s assume you spent $30,000 on a property that had $2,000 in taxes due. You thought it was a nice house. It turns out the address was the nice house but the property is the vacant lot next to the nice house and it is worth $3,000.00. Under the old law you had to go to deed and write off $30,000, or just walk away from the lien. Now you can redeem the lien and get the $28,000 surplus back. Even better, you could do proper due diligence and not have the problem in the first place.
Indiana – Interest Rates, Penalties & Redemption: The redemption rate in Indiana is one year. Now let’s discuss how the various interest rates work:
- You receive a 10% penalty on the minimum bid if it redeems anytime in the first six months.
- You receive a 15% penalty on the minimum bid if it redeems between six months and one year.
That is fairly simple to figure out. Where it gets a little tricky is the “overbid/surplus” and what it earns. Any amount bid above the minimum bid earns 10% simple interest. The statute does not say if this 10% simple interest is computed on a daily basis or if it pays 5/6 of 1% for any part of a month outstanding. For purposes of our example we will assume it pays 5/6 of 1% for any part of a month.
You purchase a lien that has a minimum bid of $2,000.00 for a total of $30,000.00.
- The lien redeems in three months: Penalty earned is $200.00 (10% penalty on $2,000). Interest earned is $700 (10% interest on $28,000 for 3 months). Total return is $900 on an investment of $30,000 or an annualized return of 12%.
- The lien redeems in eight months: Penalty earned is $300.00 (15% penalty on $2,000). Interest earned is $1,866.67 (10% interest on $28,000 for 8 months). Total return is $2,166.67 on an investment of $30,000 or an annualized return of 10.83%.
As can be seen, early redemption is a plus as far as your return is concerned. In addition, the higher you bid for the property the closer your return will get to 10% since more of your money is earning a 10% interest rate rather than a penalty rate.
Indiana - Bidding Method: The bidding method, is simple, it is the highest and best bid, meaning that the lien is sold to the individual willing to pay the most for the property. Interest is earned on the full amount of the bid, including surplus or overbid, and the surplus or overbid is returned to the lien buyer upon redemption. The amount of interest earned on the overbid and/or surplus is limited to 10% per annum.
If you would like more information about the upcoming Indiana Tax Sales, CLICK HERE AND DOWNLOAD OUR FREE WHITEPAPER ON INDIANA.
Posted by Courtney Lane on Wed, Aug 24, 2011
We will wrap up our discussion on bidding strategies with a final review of interest, penalties and what you really earn at as a tax sale investor.
As many of you now John has been a bond trader for about 15 years making him more comfortable in this area than most, but it can even confuse him at times. So what exactly is the difference between a 10% penalty rate and a 10% interest rate? Indiana is a good place to show this (click here to review Indiana laws). A 10% interest rate earns 27.3 cents a day on a $1,000.00, whereas a 10% penalty is $100.00 on day one and is still a $100.00 on day 365. A 10% penalty earned on day 30 is a 121% annual interest rate.
Most states simplify things by staing that their interest rate is x percent per month or any part thereof. What that means is that you earn the full months interest if the lien redeems on the 1st of the month or if it redeems on the 31st of the month. Let’s give you an example of what this means:
Assuming our $1,000.00 lien has a 1.5% monthly interest rate and the lien redeems on the 1st of the 10th month. The total earning would be: $15.00 X 10 or $150.00 in 271 days (for this example I have assumed each month has 30 days). This is an annual interest rate of 20.20% instead of the 1 .5% or 18% annual rate that you might think.
The reason that I go into this is that you want to determine, before the auction, exactly how the county or taxing jurisdiction calculates the interest or penalty charges. I have found that oftentimes they state an interest rate, however it really is a penalty (South Carolina is an example). In addition, there are a number of states that have laws where the lien buyer receives a penalty and an interest rate. New Jersey has a penalty system based on lien size that is in addition to the rate bid at the auction. Florida has a penalty that is received if it amounts to more than the interest rate. Knowing the exact way that the penalties and/or interest is calculated allows you to make an informed decision on what you want to bid.