Washington County, Maryland
Hi All,
I attended today the Washington County tax lien auction here in Maryland. The interest rate is 6% on the tax amount. The high bid premium is (bid - assessed) / 5. It's refunded upon redemption or foreclosure, without interest. There was exactly 74 liens to be auctioned, and about 75 people in the audience. There was at least 57 registered bidders.
Most people in the audience didn't buy anything, some bought only 1 lien. Most liens were bought by 6 or 7 bidders. I bought 11 liens. If all my liens get redeemed, I'll make 1% return on my purchases (paid about 5 times as much in high bid premiums as I paid for taxes - only taxes earn 6% interest).
The bidding system in Maryland is to bid up the price you eventually pay upon foreclosure of right of redemption. John Beck advises against such a bidding system if you want the property, but mentioned in his Free & Clear that such bidding system is that bad in low interest counties. Well, I am sad to report that the prices got bid up just as high as they were last year in Baltimore city (which pays 18%) and Charleston county (which pays roughly 12%).
Everything sold at the auction, including a lot assessed at $370 and whose delinquent taxes were $397. I am feeling quiet discouraged today. One property assessed at $81,000 sold for $70,000. I plan to go see a lawyer to find out, if I were to buy it from the owner for $60,000 (such prices including any mortgages) and don't redeem, whether or not I will get the excess proceeds.
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I don't understand the comparrison of taxable and tax free yields?
Is interest on MD tax liens tax free?
Quote:
On 2004-06-01 21:09, cjmazur wrote:
I don't understand the comparrison of taxable and tax free yields?
Is interest on MD tax liens tax free?
Hi cjmazur,
First, let me correct the formula for high bid premium ... it's (bid - 0.4*assessed) / 5 ... as soon as you bid over 40% of the assessed value, you pay a high bid premium.
It's not the interest that's tax free. It's the high bid premium that's interest free. If you pay $2,000 at the auction, and if that represents $1,000 of taxes and $1,000 of high bid premium, only the first $1,000 earns 6% interest (taxable, unless you use an IRA). So you effective rate is 3%. My effective rate from this auction is 1%.
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