At nearly all tax sales, there are parcels that do not sell for even the minimum amount of taxes owed.
An interesting thing to note about this phenomenon is that it indicates overassessment of a property to an almost unbelievable degree. The property is being taxed in excess of its true market value over the course of just one or several installments of taxes! This is shown by the fact that nobody is even willing to pay the current taxes owed for the property.
Of course, delays in holding tax sales can result in more installments building up than intended by law, before a sale is held. See my article, “Tax Sales – Essential for Every Community”, for more information on this effect.
In most states, counties re-offer the properties that do not sell at second-chance tax sales. Let’s look at a few ways we might be able to get involved.
Opportunities at “Second-Chance” Tax Sales
If a county re-auctions properties that did not sell at the original sale, but doesn’t give special terms, bargains will still be elusive.
Even if the bidding starts at 1 cent for leftover parcels, competitive bidding will usually eliminate any opportunity to get a property for less than market value.
However, since the properties offered at these tax sales are more “bottom of the barrel”, these tax sales may attract fewer bidders and bargains may be had.
Other times, counties will sell the properties “over the counter”. It’s possible to make small profits on these properties occasionally. In general though, even minor bargains that are openly available to the public for any significant amount of time will be snapped up.
“Second chance” sales in tax lien states, however, can be one of the rare opportunities to participate directly in tax sales, enjoy low prices, AND eliminate negatives associated with tax liens.
This is because the county can “sweeten the deal” in more ways than one in the second chance tax sale.
Indiana Commissioner’s Sales
One example is an Indiana commissioner’s sale. Commissioners can drastically cut the minimum bid for properties offered in the sale, especially after multiple failed attempts to obtain what is actually owed in previous sales. In addition to this benefit, redemption periods for owners are also cut to a very attractive 120 days. Return on investment remains at 10% flat amount for the 120 days (30%+ APR!)
Because county officials in many Indiana counties seem unable to perform reassessments in a timely manner, delays in the tax sale happen often as mentioned above. So, in a typical example, taxes on a servicable single family home in Gary, Indiana can reach almost $10,000 from one sale to the next.
The market value of a home like this is around $10,000, and redemption rates are not as high as the rest of the county, so few bidders will participate in the sale of a home like this.
However, the county may cut the minimum bid of a properties like this to $2000 or less, and just as importantly, reduce the redemption period down to 120 days. Because of the volume of properties offered, and the fact that this is not a deed sale, bidding remains subdued in many cases, and bargains can be had.
In a recent sale I was able to acquire 4 homes, 2 of which were rented Section 8, at $450 apiece, for a total of less than $10,000. The two vacant homes required less than $10,000 total to fix up and are now rented at $450 and $600 apeice, for a yearly gross rent of $23,400. At first, the deal sounds unbelievably good with a less than 12 month payback on investment. I was indeed happy with the investment but it’s not nearly as great as it seems.
Work Second Chance Property as a DeedGrabber?
In my experience, it only pays to be involved in second chance sales as a bidder. Typically, if the owner of a “second chance” property wants to redeem (HINT: this is you if you buy it from the current owner), the full amount of taxes must be paid. In the example above, you would have to pay $10,000+ to redeem the property that you observed sell for $2000 at the second-chance sale.
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Sites That Link to this Post
- Rental Properties Overtaxes in Lake County Indiana | taxsale.net | November 29, 2010
- Above The Counter Tax Sales | Property taxes | February 11, 2012
- Through The Counter Tax Sales « Real estate | February 12, 2012