Introduction to Tax Sale Overages
Tax liens and tax deeds often sell for higher than the county’s asking price at auctions.
In addition, most states have laws affecting bids that surpass the opening bid. Payments above the county’s benchmark are known as tax sale overages and can be profitable investments.
However, the details on overages can create problems if you aren’t aware of them.
Luckily, Tax Sale Resources has over a decade of tax sale investment experience and provides updated information on tax liens and deeds. In this article we tell you how to get lists of tax overages and make money on these assets.
What are Tax Sale Overages
Tax sale overages, also known as excess funds or premium bids, are the amounts bid over the starting price at a tax auction.
The term refers to the dollars the investor spends when bidding above the opening bid.
For example, say you’re interested in a lien with an opening bid of $10,000. This starting figure reflects the taxes, fees, and interest due.
Then, the bidding begins, and multiple investors drive up the price. Then, you win with a bid of $50,000. Therefore, the $40,000 increase over the original bid is the tax sale overage.
How to Claim Tax Sale Overages
Claiming tax sale overages means acquiring the excess money paid during an auction.
Because every state has different laws regarding overages and auction procedures, consulting with an attorney and becoming well-versed in your local overage laws are crucial.
That said, tax sale overage claims have shared characteristics across most states.
Generally, the county holds the money for a specified period depending on the state.
During this period, previous owners and mortgage holders can contact the county and receive the overage. However, counties usually don’t track down past owners for this purpose. Instead, it’s up to these interested parties to pursue the overages.
If the period expires before any interested parties claim the tax sale overage, the county or state usually absorbs the funds. Once the money goes to the government, the possibility of claiming it vanishes.
Therefore, past owners are on a strict timeline to claim overages on their properties.
How to Make Money with Tax Sale Overages
While overages generally don’t equate to higher earnings, investors can take advantage of them in several ways.
First, you might receive interest for the amount you bid instead of the opening bid.
Remember, your state laws affect tax sale overages, so your state might not allow investors to collect overage interest, such as Colorado. However, in states like Texas and Georgia, you’ll earn interest on your entire bid.
While this aspect doesn’t mean you can claim the overage, it does help mitigate your expenses when you bid high.
Second, although investors can’t claim overages for themselves, they may have an opportunity with past owners.
Specifically, investors who paid a premium bid can work with past owners to claim the overage and charge a fee for doing so.
Disclaimer: it’s essential to check your state laws to ensure this is a legal process in your county. Otherwise, you could run afoul of your state or county laws and face legal consequences.
So, working with an attorney and becoming an expert on your municipal statutes are critical aspects of this money-making strategy for tax sale overages.
Remember, it might not be legal in your state, meaning you’re limited to collecting interest on the overage.
How Can An Investor Profit from Tax Sale Overages?
As stated above, an investor can find ways to profit from tax sale overages.
Because interest income can apply to your entire bid and past owners can claim overages, you can leverage your knowledge and tools in these situations to maximize returns.
Below are the details.
Step-by-Step Guide to Tax Sale Overages
First, as with any investment, research is the crucial opening step.
Your due diligence will provide the necessary insight into the properties available at the next auction. Whether you use Tax Sale Resources for investment data or contact your county for information, a thorough evaluation of each property lets you see which properties fit your investment model.
Next, zero in on the properties you want to target at the auction and arrange your finances.
A crucial aspect to remember with tax sale overages is that in most states, you only need to pay the county 20% of your total bid up front. Some states, such as Maryland, have laws that go beyond this rule, so again, research your state laws.
That said, most states follow the 20% rule.
For example, bidding $50,000 on a property with an opening bid of $10,000 doesn’t mean you need the entire sum to purchase the property.
Instead, you only need 20% of the bid. However, if the property doesn’t redeem at the end of the redemption period, you’ll need the remaining 80% to acquire the tax deed.
Because you pay 20% of your bid, you can earn interest on an overage without paying the full price.
In addition, your research should lead you to past owners.
Again, if it’s legal in your state and county, you can work with them to help them recover overage funds for an additional fee.
So, you can collect interest on an overage bid and charge a fee to streamline the overage claim process for the past owner.
Tax Sale Overages vs Lien and Deed Investing
Focusing on tax sale overages instead of conventional tax lien and tax deed investing requires a specific strategy.
In addition, just like any other investment strategy, it offers unique pros and cons.
So, an informed approach is key to profiting from tax sale overages. Otherwise, you’ll be vulnerable to unseen risks and legal ramifications.
Why would an investor choose to pursue tax sale overages as a business model?
Tax sale overages can form the basis of your investment model because they provide an inexpensive way to earn money.
For instance, you don’t have to bid on properties at auction to invest in tax sale overages.
Instead, you can research existing overages and the past owners who have a right to the money. Then, you can charge to help the owners recover the overage funds.
Doing so doesn’t cost hundreds of thousands of dollars like purchasing multiple tax liens would.
Instead, your research, which may involve skip tracing, would cost a comparatively tiny fee.
What States can an Investor go after Tax Sale Overages?
Any state with an overbid or premium bid method for auctions will have tax sale overage opportunities for investors.
Remember, some state statutes prevent overage options for past owners, and this issue is actually the subject of a current Supreme Court case.
However, until a ruling occurs (our newsletter will cover the news as soon as it emerges), the following states don’t have tax sale overages: Alabama, Arizona, Colorado, Illinois, Maine, Massachusetts, Minnesota, Nebraska, New Jersey, New York, Oregon, South Dakota, and the District of Columbia.
Best States for Tax Sale Overages
Ultimately, the best state for tax sale overages differs for each investor.
Your resources and methodology will determine the best environment for tax overage investing.
That said, one approach to take is collecting interest on high premiums.
To that end, investors can buy tax sale overages in Florida, Georgia, and Texas to take advantage of the premium bid laws in those states.
Pros and Cons of Tax Sale Overage Investing
The primary advantage of tax sale overage investing is the minimal capital it takes to get started.
In addition, overages apply to more than tax deeds. So, any auction or foreclosure involving excess funds is an investment opportunity.
On the flip side, the main drawback is that you might not be rewarded for your hard work.
For example, you can spend hours researching the past owner of a property with excess funds and contact them only to discover that they aren’t interested in pursuing the money.
Likewise, they might be skeptical about the information you provide because scams occur occasionally in real estate.
In other words, while your information and aims might be legitimate, the past owner may not believe you.
Lastly, there’s nothing stopping the owner from pursuing overage funds by themselves.
So, if you contact an owner about excess funds and offer your services, they may decide to go it alone, leaving you without payment despite the time and money you spent doing your homework.
Therefore, crafting your messaging deliberately and using carefully worded contracts are vital to profiting from tax sale overages.
Recommendations to Succeeding with Tax Sale Overages
Succeeding with tax sale overages requires expertise in your state laws and access to current data on the relevant properties.
While you’ll have to search on your own for legal advice and procedural know-how for investing in premium bids, Tax Sale Resources can provide the data you need on local opportunities.
Specifically, recently sold properties and the amount of excess funds with each are essential to your investing approach, and the lists we provide to members show precisely that.
Frequently Asked Tax Sale Overage Questions
How to buy tax sale overages lists in Florida?
Investors can buy tax sale overage lists in Florida on the Tax Sale Resources website.
We provide data to over 26,000 investors for several thousand jurisdictions every year.
With more than five cross-referenced data sources and over a decade of historical data, investors can find robust tax sale overage information with Tax Sale Resources’ downloadable datasets.
Where do I get lists of tax overages?
To get lists of tax overages, you can use Tax Sale Resources research tools.
Relying on county data and fellow investors can leave you with incomplete information, while the lists from Tax Sale Resources provide a full profile of every property that was sold with a tax overage.
How to start a tax overage business?
You can start a tax overage business with minimal expenses by tracking down information on recent properties sold for a premium bid.
Then, you can contact the past owner of the property and offer a price for your services to help them recover the overage.
In this scenario, the only cost involved is the research instead of spending tens or hundreds of thousands of dollars on tax liens and deeds.
A tax sale overage is the amount of dollars paid over the opening price at an auction.
These overages usually generate interest and are available for past owners to claim.
Therefore, whether you invest in tax liens or are solely interested in claims, tax sale overages are investment opportunities that require hustle and solid research to turn a profit.