Excess Proceeds 101

Excess Proceeds 101

Let’s talk a little about a hidden secret for making easy money. I know – I have promised to never to give you any “get rich quick” schemes – but I would be remiss if I didn’t mention the exception to the rule: excess proceeds from tax sales.

Now, you may have heard me talk about this before (and you may have even purchased my Hidden Tax Sale program). But I think that the information is worth repeating, and if you haven’t tried these methods yet as an investment vehicle… well then you don’t know what you have been missing.

Before you continue, check out this previous blog post about tax deed sales…I’ll wait.

Are you back? Great.

Now that you know how tax deed sales work, ask yourself a question: what happens if multiple bidders drive the price higher than the minimum bid. In other words, if the county is only owed $10,000 – but the winning bid is for $25,000 – then what happens to the extra money? Does the county keep it?

Because the county assessor is part of the local government, they are not entitled to keep any money over and beyond what they are owed. So in most tax deed states, the overage (excess proceeds) go to the owner of record.

Here’s how the California state statutes explain the arrangements:

4675: (a) Any party of interest in the property may file with the county a claim for the excess proceeds, in proportion to his or her interest held with others of equal priority in the property at the time of sale, at any time prior to the expiration of one year following the recordation of the tax collector's deed to the purchaser.

While I was investigating tax delinquent lands to purchase using my land Profit Generator methods, I came across this process, and a light bulb clicked on in my head. What if I could purchase a piece of tax delinquent land that was headed for auction for next to nothing and let the government sell it for me? Then, I could collect the excess proceeds.

I decided to test out my theory and purchased three properties that owed a combined amount of $55,000 in back taxes. I paid $100 for the properties and figured that worst case scenario I would simply lose $100. Imagine my surprise when one of the properties sold for $60,000! It owed $35,000 in taxes, and the other $25,000 belonged to me! I couldn’t believe it.

But the devil, as I found out the hard way, is in the details.

Some states require that you earn the property for a certain amount of time before the auction, and I lost out on another $3,500 check because I didn’t record the deed in time.

Investing in excess proceeds is half the work and twice the fun. All you have to do is:

  1. Find a property with delinquent property taxes and buy it before the auction
  2. Wait for the auction
  3. After the auction, check to see how much it sold for
  4. Send in the form used by the county to request excess proceeds
  5. Wait for the redemption period to expire (3 months to a year) and collect your check!

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