Most tax lien investors fall into one of two categories: (1) investors who purchase tax liens for the interest on the lien (6-20% depending on the county) or (2) investors who purchase tax liens as a means to acquire the property. An investor’s tax sale bidding strategy is largely determined by this end goal.
When bidding on a tax lien, there are several key numbers that investors must consider, especially if the County imposes a High Bid Premium (“HBP”).
Sample Maryland Tax Lien Bid
For example, here is a sample tax lien bid:
In this example, the assessed value of the property is $115,000.00 and the tax amount at the time of the sale is $2,150.00. This investor submitted a bid of $55,000.00. The assessed value and the bid price are used to determine the amount of the high bid premium (“HBP”), if applicable. An HBP is an amount in excess of the delinquent tax that is added to the winning bid on all tax lien certificates to be sold at the tax sale. The HBP is generally 20% of the amount by which the highest bid exceeds 40% of the property’s assessed value. The HBP is refunded, without interest, to the holder of the tax lien certificate on redemption or following judgment on delivery of a tax sale deed. Here, the HBP is $1,800.00 and calculated as such:
Bid = $55,000.00
40% AV = $46,0000
($55,000.00 – $46,000.00)(.2) = $1,800.00
In the above example, the winning bidder is required to pay the tax amount, plus the HBP, within a certain period of time (generally 24 hours) from the date of the sale. Failure to pay the amount will result in disqualification of the bidder. In this case, that amount is $3,950.00. The winning bidder is not required to pay the bid amount of $55,000.00 at this time. The winning bidder is only required to pay the bid price if the tax lien holder obtains a judgment in the associated foreclosure case. If a judgment is obtained, the tax lien holder must pay the bid price ($55,000.00 above), plus the taxes, fees, and charges that have accrued since the date of the tax sale.
Schedule a free Maryland Tax Lien Attorney Consultation
If you have questions about tax lien bidding or any other aspect of Maryland tax liens, please contact Ryan Lewis at the Law Office of Ross W. Albers, LLC for a consultation.