When properties go to auction to redeem unpaid property taxes, investors have the opportunity to get real bargains on those properties by purchasing unpaid liens. In Detroit, Michigan, however, the delinquent homeowners cashed in on those bargains instead with the help of a nonprofit coalition that purchased $194,000 worth of liens and “saved” 150 homes from the block[1]. The homes were purchased at the tax auction, “in most cases for a fraction of what they owed in back taxes,” thanks to Ted Phillips and his United Community Housing Coalition.

The coalition worked with the Wayne County Treasury Office to reach homeowners whose homes were in jeopardy and urge them to set up repayment plans with the country office or set aside cash for the auction. Of the 500 reached, 180 could not redeem the liens themselves and had to turn to the coalition for help. The coalition waited out the initial tax auction in Wayne County which takes place in September. In that auction, bidding starts at the amount of taxes owed. However, the secondary auction in October, which is an attempt to sell off “less valuable, picked-over homes,” features starting bids of $500 regardless of lien amount. The coalition targeted the homes in this auction and bid online, starting with the minimum bid. Of the 180 homeowners who asked the coalition for help, 150 had their homes saved in the process. Many of the homes were unwanted and went for the minimum bid, including one with a $5500 lien. The coalition worked with homeowners and combined their funds with those of the homeowners to make the payments. For example, one homeowner redeemed his property, which was $12,000 behind on taxes, for $5,600. He paid $2,600 and the coalition loaned him the rest. The homeowners are supposed to repay the loans from the coalition, and that money will be used to help other homeowners next year.

In this case, the secondary auction in Detroit was a lifesaver for many homeowners. However, many tax lien investors also like this type of auction with a set minimum bid because it enables them to buy liens on properties for far less than what the lien on the home is actually worth and, in some cases, foreclose on that property for a large margin of profit. Do you prefer the “picked over” tax auctions or do you like to go for the properties you want up front?

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[1] http://www.freep.com/article/20110109/NEWS06/101090510/1319/Coalition-saves-150-homes-from-tax-auction-block-with-194000