Reader Questions - 1
"What Happens to All That Extra Money Collected at Tax Sales?"
Here is a GREAT question I got from a subscriber:
I'm so glad I stumbled on your website, because I've had no luck trying to find properties at a tax deed sales.
It's funny what you say about the bidding at the auctions because I've already tried to bid on some and I can't afford to buy any of them, the bids go way to high and I have to drop out.
Here's what I want to know - what happens to all that extra money that is collected at the sale?
Lloyd, it took a couple years for that question to even occur to me when I was getting started in the tax sale business - so thanks for asking. Getting to the bottom of odd questions like this can often lead to some surprising answers!
Since Lloyd has actually attended some tax sales before, and I'm guessing there is a good chance most subscribers have not, let's back up just a little bit.
We've discussed before how, when you attend tax deed sales, decent properties will often be offered for $2,000-$5,000, or sometimes even much less. But that's just the minimum bid - usually the taxes owed.
Suppose you have a $60,000 property identified and the minimum bid is only $5,000. So you grab all your cash and head off to the sale and register to bid on it.
When the auction begins, what usually happens?
Grrrrr....There are 10 or 20 other bidders in attendance who have that same property in their sights. Before you know it, the property is "on the blocks" - and the bid goes up to $8,000.... $15,000... $27,000... $39,000... and settles right at $45,500.
You might have had up to $10,000 you were willing to spend, so you go home empty-handed. But you already knew that was going to happen, right? I've already warned you 😉
Here's the interesting part. The owner of that property owed $5,000 in taxes to the county, and as of a couple hours ago, the county just collected $45,500. Sure, the county has their $5,000 now. But what about that extra $40,500 they have in their hot little hands?
In a few states, the county just gets to keep it. Unbelievable!
However, in most states with tax sale bidding, the former owner of the property can go right over and claim the extra $40,500 from the county! The former owners better hurry though (the government loves timelines!) because if they wait too long THEN the county or state will often take over the funds - permanently.