The Tax Sale is not to be confused with the Sheriff sale. Both the Tax Sale and the Sheriff Sale are unique and have their own set of rules and guidelines.
The Marion County Sheriff Sale, which we have discussed in detail in a recent blog, happens once a month and deals with foreclosures across the city. The Marion County Tax Sale, however, only happens once a year, and deals with properties with unpaid taxes.
In some cases, the Tax Sale auction can be a great opportunity for investors to purchase properties well below market rate, but it’s not without risk.
We thought we would take some time to explain how the tax sale works, so you can be ready for the next auction.
THE DIFFERENCE BETWEEN TAX DEEDS AND TAX LIENS
One of the most important things you need to know, is that there are two very different types of tax sale properties: Lien and Deed.
Tax Lien Sale – When bidding on a tax lien sale, you are not bidding on the actual deed to the property, but on its tax debt. Basically, you are loaning money to the property owner to pay his or her taxes. You may be wondering, why on earth would I want to do that?
Well, this can be a lucrative investment, as a property tax lien is sometimes sold for a small fraction of a property’s market value.
You pay the delinquent taxes to the county on behalf of the property owner. In exchange, you are given first lien position on the title; you then receive a certificate of purchase or a tax lien certificate.
It’s typically a win-win situation for an investor. If the delinquent taxpayer pays off the late taxes, you will receive the principal paid for the lien, plus any interest that has accrued. If the late taxes are not paid by a specified date, you can foreclose and take title to the property.
So, while you may not end up walking away with an actual property, you could be walking away with some extra cash.
Tax Deed Sale – Unlike a tax lien sale, a tax deed sale is when the actual deed to the property of a delinquent taxpayer is auctioned off. The winning bidder purchases the deed to the property, becoming the new owner and obtaining all of the rights to the property free of all liens, mortgages, deeds of trust, etc. In a tax deed sale, the property is usually sold for the back tax amount plus any fees, interest charges, and court costs.
Like a tax lien sale, investors purchasing a tax deed can – theoretically – acquire full property rights at a fraction of the market price, since property taxes are a small percentage of market value.
HOW DOES THE MARION COUNTY TAX SALE AUCTION WORK?
The following information is taken from the Tax Sale and Information Procedures document that is posted online prior to every Tax Sale.
Bidder Registration – Every bidder is required to register and deposit a minimum of $1,000. Bidder numbers are required to bid and are only given to those who have registered and deposited the minimum amount.
The registration form requires the name, address and telephone number of the bidder as well as the name and address as they are to appear on the Tax Sale Certificate. Also required is either a Social Security Number or Federal I.D. number and completion of a W-9.
You can either pre-register online, usually up to a month or more before and mail the acceptable form of check or wire funds for deposit.
You can also pre-register in person in the Treasurer’s office in the City County Building.
You do have the option of registering the day of the sale, but it usually involves waiting in long, slow lines which could cause you to miss bidding on certain parcels, so it’s not recommended.
Required Deposit and Acceptable Forms of Payment – Bidders are required to have a minimum of $1,000 on deposit with the Treasurer’s Office.
Payments are limited to Cash up to $10,000.00, Wired Deposits, Money Order, Certified Check or Cashier’s Check that is issued by a financial institution. No personal or business checks will be accepted.
These checks are to be made payable to the Marion County Treasurer.
Deposits may be made:
- At the Treasurer’s Office in the City-County building
- By mail, addressed to: Marion County Treasurer Attention: Sale Account Deposit Room 1001 City-County Building 200 E Washington Street Indianapolis, IN 46204.
- It’s very important that you get your deposit in early and that you have a sufficient amount for what you think you may spend because successful bidders are not allowed time to go to the bank to secure funds to pay for their purchase(s).
Account Deposit Management – Tax Sale purchases are charged to the bidder’s account using the successful bidder number at the conclusion of each auctioned item.
If a bidder’s deposit balance becomes too low to make subsequent purchases, the bidder will be required to deposit additional acceptable funds before making additional purchases.
All bidder unspent funds on deposit are refunded by a county check and mailed within 10 days of the close of the auction.
Receipts for purchases are mailed after the account has been balanced and within 10 days of the close of the auction.
Eligible Parcels in Sale – The seven digit “parcel number” identifies a property and identifies the exact property being offered.
While the owner and/or common address is advertised and/or read at the sale it is the parcel number that must be used to establish the exact property and location.
All sales are final; the bidder is responsible for determining the parcel location.
Parcels will be offered for sale in Item Number sequence. Every parcel has an item number Marion county tax sale auction paddle and all item numbers start with “49A” followed by the assigned numeric number.
A complete list of Tax Sale items is available as follows:
- Newspaper: The list will appear in The Indianapolis Star and the Court & Commercial Record.
- CD: A CD in Microsoft Excel format can be purchased for $20.00 from the Treasurer’s Office.
- Web page: A PDF file to view or download will be available and is updated nightly. The file is in the same format as the newspaper list.
- Paper list: A list of only the available item numbers is updated nightly and can be purchased for $5.00 from the Treasurer’s Office Only the Tax Sale Item Number will appear on the list, it is necessary to have one of the original listings to be able to obtain other information about the parcels.
Bidders Responsibility – The office of the Marion County Treasurer provides only the seven digit parcel number and minimum bid amount. Bidders are responsible for determining any and all information regarding the property and its suitability.
While you can’t view the interior of these homes, you should do your due diligence and research what you can about any properties that you may be interested in purchasing.
Bidding Procedure – There are several categories that you will see on the website: A, B, C, Combination A, and Combination C.
It’s extremely important that you understand what these categories mean and what you are bidding on.
A and C properties are Tax Lien sales, while B properties are Tax Deed sales. The combination lists are also Tax Lien sales.
Combination parcels, usually abutting and/or for which they must be combined to offer the entire improvement, have the same ownership and are sold together and must be redeemed together.
Parcels will be offered in groups of 25 items such as items A1 through A25. Some items may become unavailable prior to the actual sale; bidders should confirm an item of interest is shown in the group.
Any registered bidder may call out an item number within that range. A call for a specific item number is an offer to purchase that item at the minimum advertised price. Once the minimum bid is made, that item is auctioned to the highest bidder.
Bid paddles must be raised high to be visible to the auctioneer and should remain up until they no longer want to bid on the property. Following the sale of an item, another item number within the group of 25 parcels can be called out and auctioned.
This procedure continues until there are either no calls for item numbers within the group or all items in the group have been auctioned. At that time, the next group of 25 item numbers will be offered.
Once bidding commences on a particular item number the bidding increments will be set as deemed appropriate solely by the auctioneer based on the number of bidders.
Bidders must have the correct type of payment at the time of becoming a successful bidder. A high bidder who fails to immediately pay the bid price in acceptable funds must pay a penalty of 25% of the amount of the bid.
Redemption Periods – A and C items that have been sold at the Tax Sale have a redemption period of 1 year following the date of the sale. This means that the current owner has that much time to pay back all of the money they owe before you can foreclose on the property and take possession.
In order to obtain your Tax Sale Certificate, it typically takes about four weeks after the day of the sale for the county Auditor to prepare it. They will notify you when it is available and you must present the Tax Sale receipt and a photo ID to the Marion County Auditor.
The property will be transferred to the successful Tax Sale bidder if the owner does not redeem the property during the redemption period. If the property is not redeemed within the redemption period the Tax Sale buyer may present the Tax Certificate to the County Auditor and receive a Tax Deed to the property granting title of the property to the buyer.
If the parcel is not redeemed and the Tax Sale buyer surrenders the Tax Certificate to receive a Tax Deed, all delinquent taxes, penalties, and/or special assessments which became due subsequent to the Tax Sale must be paid before the Auditor will petition the court to issue a Tax Deed to the Tax Sale buyer.
The Tax Sale buyer’s lien expires three months after the expiration of the redemption period. If you want the title to the property, you must present the Tax Certificate to the County Auditor during the 3 month period. After 3 months the lien is void.
B items are Deed Sales and so they obviously do not have a redemption period since you purchase the full title to the home the day of the sale.
If a property IS redeemed, you will receive:
- 110% of the minimum bid if redeemed less than 6 months from the date of the sale, or 115% if redeemed more than 6 months after the sale.
- On the difference between the successful bid price and the minimum bid (referred to as Tax Sale Overbid): 5% per annum interest from the date of payment to the date of redemption.
- On any taxes and special assessments paid by the Tax Sale buyer subsequent to the sale: 5% per annum interest from the date of payment to the date of redemption.
DOES THE MARION COUNTY TAX SALE FIT INTO YOUR INVESTMENT STRATEGY?
So as you can see, a Tax Sale is a little on the complicated side, and it’s definitely not for everybody.
There are some big risks involved, and if you’re purchasing a tax lien, you don’t know exactly what the outcome will be. That can be a little scary for some investors.
However, with some diligent research and strategy, you can walk away from a Tax Sale with substantial gains to your wallet and/or portfolio.
While we consider ourselves Sheriff Sale experts, we haven’t attended many Tax Sales in our years of investing. I encourage you to do a lot of research, speak with Marion County officials about the process, and talk with other investors who have had experience and success with the Marion County Tax Sale.