Tax sale overages occur when a property is sold at a tax sale auction for more than the amount owed in delinquent taxes and fees. The excess funds after paying the taxes and fees are called overages. Tax sale overages present an opportunity for investors to purchase the rights to these funds and make a profit. Here is a guide on how to make money from tax sale overages.
What are Tax Sale Overages?
Tax sale overages, also called excess funds or surplus proceeds, occur when a property is sold at a tax sale auction for more than the amount owed in delinquent taxes, penalties, interests, and costs.
For example, if a property has $5,000 in unpaid property taxes and fees, and is sold at auction for $20,000, the $15,000 difference between the sale price and amount owed is considered an overage.
The overage does not go to the former property owner. Instead, the county holds these funds in escrow for a redemption period, during which the former owner can reclaim the property by repaying the tax sale purchaser.
If the property is not redeemed during this period, the overage must be claimed according to state laws. The former owner is entitled to the overage. If they do not claim it within a set time period, the funds may become available to the public.
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Why Tax Sale Overages Occur
There are several reasons why properties sell for more than the delinquent taxes and fees owed at tax sales:
- Property value exceeds debt – The property may be worth significantly more than the relatively small amount owed in back taxes. With competition bidding, the sale price increases.
- Poor owner research – Bidders may not research the property’s value and overbid.
- Sale mistakes – Errors in minimum bids, parcel assessments, and calculations can lead to overages.
- Unwanted properties – Owners may ignore inherited or problematic properties allowing taxes to go delinquent.
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How to Profit from Tax Sale Overages
Tax sale overages present an opportunity to purchase the rights to claim these excess funds from the county tax office after the redemption period expires. Here are two methods investors use:
1. Bid at Auction
You can purchase tax lien certificates directly at tax sale auctions. If the lien results in an overage, you have first claim to the funds.
Pros
- Direct path to overages from winning bids
- Can profit from interest/fees if redeemed
Cons
- Need knowledge of auctions
- Complex bidding strategies
- Risk of no overages
2. Buy Overage Rights from Tax Lien Certificate Holders
You can also purchase rights to overages from tax lien certificate holders who bought liens that ended up overbidding.
Pros
- No need to personally bid at auctions
- Often buy rights for fixed dollar amounts
- Certificate holders motivated to sell
Cons
- Need relationships with certificate holders
- Have less control over liens purchased
- Certificate holders may not sell all overages
Purchasing overage rights from other investors is lower risk and the easiest way to get started.
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How to Find Tax Sale Overage Opportunities
Finding tax sale overages to purchase requires research into property records and upcoming tax sales. Here are some key steps:
Research Property Records
Search county tax assessor records for:
- Properties with large past overages
- Large differences between assessed and market values
- Back taxes owed currently
This can identify potential properties headed for future tax sales with overages.
Review Tax Sale Lists
Obtain upcoming tax sale lists from county tax collector offices. Review for:
- Properties assessed much below sale prices
- Tax debts significantly lower than expected property values
Flag these properties as potential overage opportunities.
Attend Auctions
Attending live and online tax sales allows you to bid and network with other investors.
Look for investors who frequently overbid and build relationships. Make arrangements to purchase their overage rights.
Partner with Tax Lien Investors
Reach out to active tax lien investors. Offer to purchase some or all of the rights to overages from their portfolio for a fixed fee.
Search Overage Holder Lists
Counties publish lists of current overage fund holders. Search for funds listed longer term as easier to purchase.
Use Overage Fund Locators
Specialized sites like OTFLiens.com allow searches for available overage funds nationwide.
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How to Claim Tax Sale Overages
The process for claiming overages involves researching laws, documenting your claim, and submitting the paperwork. Here are the key steps:
Understand the Redemption Period
The redemption period must pass before having rights to the overage. This is typically 1-3 years depending on the state.
Review Bidding Records
Obtain paperwork from auction sale for details on purchase price, taxes owed, and overage amount.
Research State Laws
Each state has specific laws on the overage claiming process. Consult county clerks or real estate attorneys for assistance.
Provide Required Documentation
Counties require documentation proving your rights to the overage funds. This may include lien certificates, overage purchase agreements, etc.
Complete Claim Forms
You must complete specific county claim forms and provide required personal identification. Forms are available from county websites or offices.
Pay Any Filing Fees
Most counties require administrative fees between $50 to $500 to process overage fund claims.
Allow for Claim Review Period
Counties will review overage claims and required documents. This may take 30-90 days to validate.
Await Payment
If approved, the county will issue payment for overage amounts. This may be a check, ACH transfer, or direct deposit.
Consider Consulting Services
Tax overage specialists can handle required paperwork and act as claimant for a fee, usually 30-50% of the overage.
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Tips for Successfully Profiting from Tax Sale Overages
Here are some top tips for making profitable claims on tax sale overages:
- Focus on high dollar overages – Large overages over $20,000 provide biggest payoffs.
- Search for overages from 1-2 years ago – Overage funds easier to claim after a few years.
- Network with active bidders and lien holders – Key source of overage rights to purchase.
- Partner with real estate investors – They may identify overage opportunities from their purchases.
- Research property ownership history – Can uncover additional claimants you may need to locate.
- Understand tax sale laws in your state – Important to follow proper procedures.
- Hire professionals if needed – Tax attorneys and title companies can help navigate process.
- Watch out for fraudulent overage listings – Verify records before purchasing rights.
- Have patience – Redemption periods and claim reviews can take time.
With some effort put into research and relationship building, tax sale overages can become a unique source of profit for savvy investors.
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FAQs
What are tax sale overages?
Tax sale overages, also called excess funds or surplus proceeds, occur when a property is sold at a tax sale auction for more than the amount owed in delinquent taxes, penalties, interests, and costs. The excess amount after paying the taxes and fees is considered the overage.
How do tax sale overages happen?
Overages happen for various reasons:
- Property value exceeds debt owed leading to competitive bidding above taxes due
- Bidders fail to research property value and overbid
- Mistakes occur in minimum bids, assessments, and calculations
- Owners abandon unwanted inherited or problematic properties
How can you profit from tax sale overages?
Two primary ways to profit:
- Bid at auctions yourself and collect overages on winning liens
- Purchase rights to claim overages from tax lien certificate holders
Buying rights from other investors is lower risk and the easiest way to get started.
What is the process for claiming tax sale overages?
Main steps to claim overages:
- Wait out the redemption period
- Obtain bidding records showing overage amount
- Research state laws on process
- Provide documentation proving your claim rights
- Complete county claim forms with ID
- Pay any filing fees
- Allow county time to review claim
- Receive overage payment if approved
How do you find tax sale overages available?
Key ways to find overages:
- Search property records for past overages
- Review upcoming tax sale lists
- Attend auctions to network and bid
- Partner with tax lien certificate investors
- Search county overage holder lists
- Use overage locating services
Can you purchase the rights to overages?
Yes, it is possible to purchase the rights to claim tax sale overages from others. Typically this involves buying the rights from tax lien certificate holders who overbid at auction. It provides a lower risk starting point vs bidding yourself as a newcomer.
Conclusion
Tax sale overages provide a unique opportunity for real estate investors to profit from excess funds when properties sell at tax auction for more than taxes owed. With proper research into property values, networking with lien holders, and learning state claim procedures, overages can become a lucrative income stream.
Patience is needed as the process involves waiting through redemption periods and claim reviews before collecting profits. But the returns can be well worth the effort for a creative investor willing to learn the steps for successfully locating and claiming tax sale overages.
