Competitive Bidding and Tax Sales

by John on March 14, 2012

Under Louisiana law, competitive bidding at a tax sale is encouraged. However, tax sale competitive bidding is much different than a typical auction sale. For example, if you went to automobile auction each bidder could raise his price and, by paying more, become the winning bidder and get the car. No so in a tax sale auction. The competitive bidding is based on full payment of taxes, interest etc, but each bidder may elect to accept only an undivided fraction of the property. In other words, if a buyer bids the tax of $1,000 on a property to get a 100% ownership interest, a competing bidder can pay the same $1,000, but elect to accept only a 90% interest. Another bidder might throw in a bid at only 50% of the property, but still paying the full tax bill. It is not uncommon for some bidders to put in a 1% bid, so that they pay the full tax bill, but only get 1% of the property.

The problem with this “fractional” bidding is that if the property goes unredeemed, you could be stuck with a minor interest in the property which might not be worth the cost of clearing the title. You could effectively lose your investment. If you bought a property worth $50,000 at a tax sale auction, but only bid in a 1% interest, you may have only $500 worth of property. To get your money out, you would have to file a tax sale confirmation suit, followed by a sheriff”s partition sale. The court costs, attorney’s fees and sheriff’s commissions could well mean you have thrown your bid money away since it will not be cost effective to liquidate your investment.

For some bidders, the 1% strategy may have some benefit, but for the average buyer this is a poor plan. Don’t let a tax collector persuade you to follow this path – he’s trying to help out the tax debtor, not you!

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