Suppose you own a property worth $200,000.
Suppose you decide (for whatever reason) to stop paying your property taxes.
A couple of years go by and the county treasurer comes in and seizes your property for not paying your property taxes.
Once you are foreclosed, you owed somewhere in the neighborhood of $36,000 of taxes and late fees to the county. A few months later – the county brings this property to their annual tax sale – where they sell your property to the highest bidder – all in an effort to recoup their lost tax revenue on each parcel of real estate.
Since you owed $36,000 on your property at the time of foreclosure, the county decides to start the bidding process at $36,000 (because this is the bare minimum they will need in order to recoup the money that you owed them).
However… your property is easily worth $200,000 (and most of the investors bidding on your property already know this). In many cases, properties liked yours will receive bids beyond the amount of back taxes actually owed. It wouldn’t be uncommon for a property like yours to actually sell at auction for say – $80,000 (still a great deal for the buyer – at 40% of market value, and FAR more than the $36,000 you originally owed).
The county only needed $36,000 out of this property. The margin between the $36,000 they needed and the $80,000 they got is known as “excess proceeds” (i.e. – or at “tax sales overage”, “overbid”, “surplus”, etc). Many states throughout the U.S. have statutes that prohibit the county from keeping the excess payment for these properties.
This is where the good opportunity exists in collecting excess proceeds. The county has rules in place where these excess proceeds can be claimed by their rightful owner – usually for a designated period of time (which varies from state to state).
And who is the “rightful owner” of this money?? In most cases, it’s the last owner of record at the time of foreclosure (aka – YOU).
That’s right! If you lost your property to tax foreclosure because you owed $36,000 of taxes – and if that property subsequently sold at the tax sale auction for $80,000 – you could feasibly go and collect this $44,000 difference after going through a few simple steps to claim the money (e.g. – proving you were the prior owner, completing some paperwork, waiting for the funds to be delivered).
