Types of Government Tax Auctions

Before you are allowed to bid at auctions, you will need to register. Some states require you to register before the day of the sale with the County Tax Collector or County Treasurer. This may require you to fill out some paper work and provide them with a taxpayer ID number. Other states may let you register on the day of the auction. In this case you will want to show up at least an hour in advance to make sure you have plenty of time before the bidding begins. Payment for succesful bids is usually in the form of a cashier's check, money order, or cash. Personal checks are almost never an acceptable method of payment. Make sure to have your payment method worked out prior to attending the auction. If you are unable to pay immediately following the auction, the property will most likely be re-auctioned and you will not be able to participate.

There are a few different types of auction processes at Government Tax Sales. The minimum bids are usually the only constant in all auctions. The minimum bid is the sum of property taxes delinquent, plus the interest owed and other penalties. There is almost always some sort of administrative or recording fee attached to the minimum bid as a result of the necessary paperwork done by the local government. Below, is a description of the most common types of auctions used for tax lien certificates and tax deed sales. Some states may have variations of one type or a mix of several types.

Interest Rate bided down
This type of auction is for Tax Lien Certificates, and starts with the maximum interest rate. The auction proceeds with each investor willing take a lower percentage of interest on the Tax Lien Certificates. The amount paid for the Certificate is a fixed amount, the percentage of interest (the investor's rate of return) on that certificate is the variable determined by the auction. This type of auction is more a benefit to the delinquent taxpayer than the investor. As the interest rate goes down on the certificate, the delinquent taxpayer's cost to redeem the property also goes down.
Highest bid
This is the most common type of auction format. This can be used with both Tax Lien Certificates and Tax Deed Sales. The bidding starts with the minimum bid and proceeds with each investor willing to pay a higher price. With Tax Lien Certificates the interest rate is fixed, the price you pay for that interest rate is the variable. With Tax Deed Sales this is usually the auction method used. You are bidding on the deed to the property, so the succesful bidder is the investor willing to pay the most for that deed.
Premium bid
This is basically the same as the Highest bid style. The only difference is the bidding starts at zero (no premium). The bidding then increases by the premium amount, the amount an investor is willing to pay above the minimum bid. Keep in mind that the bids in this type of auction are not the total amount you will need to pay. The total amount due is the minimum bid, plus the succesful auction bid (premium bid).
Percentage of Ownership bidded down
This type of auction usually has a fixed amount of interest and a fixed minimum bid. The bidding starts at 100% ownership of the property. The bids then proceed with the investor willing the take the least amount of ownership in the property. This is usually only used in Tax Lien Certificates auctions, and therefore the percentage of ownership may never be an issue. It only applies if the delinquent owner fails to redeem the property, the property is foreclosed on and the investor is issued a deed.