Posted by QuickReadAbout.com Staff in Tax Foreclosure is considered as one of the worst nightmares that a homeowner can have.
If a homeowner fails to pay his taxes even after repeated reminders, the government has the right to foreclose the property and put it on sale. A tax foreclosure is usually initiated by relevant government bodies and in essence is a kind of sale or auction of tax liens to collect unpaid tax amounts due on the homeowner, with respect to their real estate properties. Apart from tax foreclosure sales, tax deed sales is another methodology used by the government to retrieve unpaid taxes from the property owners.
In a tax foreclosure sales process, a public auction is arranged in which the lien (basically consist of the unpaid taxes, the interest thereof and the costs associated with the sales process) is presented in front of prospective investors. In case of multiple investor expressing an interest in the same lien offer, the choice of winner is made on the basis of one of the below mentioned methods-
> Bid Down the Interest Method – In this method, a maximum rate of return is fixed up by the government beforehand and no bidder is allowed to cross that rate limit. The investor who is willing to accept the lowest rate of return among the potential investors is declared as the winner of tax foreclosure. In case a tie takes place with regard to minimum rate of return, a random or rotational method is used to sort out the situation.
> Premium Method – With regard to premium method, an investor paying the highest premium on the lien amount offered to him/her is considered to be the winner. This is a very straight forward way of selecting the winner and is the method of choice in some parts of the country.
> Rotational Selection Method – In case of rotational selection method, the lien is first offered to the investor who is first on the bidders list, and in the event of his/her refusal, the lien is then transferred to the next person on the list and so on. The first bidder on the list is provided with another lien only when equal chance is given to all the potential investors on the bidder list.
> Random Selection Method – In this method, a potential investor is selected randomly from the list of bidders interested in the bid. The process of random selection is generally conducted with the help of computers.
> Bid Down The Ownership Method – Under this method the lien is offered to the bidder who is interested in purchasing it at lowest cost of the property, say 90%. In case of redemption of lien, the said investor would only be eligible for 90% ownership and the remaining ownership of 10% would be owned by the original owner of the property.
In case of a situation that some liens remained unsold at the end of auction process, they are generally taken up by the entity responsible for conducting the auction. These unsold liens of the auction process are known as “struck”.