In this post we're talking about some advanced strategies for tax deed investing.  We’ve had some students comment on our forum about a “bid surplus” at tax deed sales and tax deed auctions and where the surplus goes.  The technical term of a bidder surplus is “Excess Proceeds.” Excess proceeds can also serve as an aggressive tax deed investing strategy. As discussed in previous posts about tax deed investing, the bidding amount at the auction starts where the delinquent property taxes are plus any costs the county incurred to make the property available at the auction.  At tax deed sales, the final bid amount ends up being much higher than that minimum amount.  The excess proceeds or bid surplus is the difference between the final bid amount and what is actually owed to the county.  You might wonder where all the excess proceeds go as this can be a large sum. In Missouri the statute pertaining to the excess proceeds states, “The treasurer shall place such [surplus] to the credit of the school fund of the county, to be held in trust for the term of three years for the owner or owners or their legal representatives…”  The statute is similar in many states.  The excess proceeds don’t go to the school but are held in the school fund until the property owner claims them.  When the statute says ‘the owner’ they’re not talking about the new property owner, they’re talking about the old property owner; the owner that was delinquent.  Kind of crazy but it’s true. So an opportunity arises for the clever investor to work with the old property owner to gain access to these excess proceeds.  Generally the way it works is the investor meets with the delinquent property owner and negotiates a Quitclaim Deed.  The old property owner signs over all interest they have in the property to the investor.  There isn’t very much in it for the property owner.   But they would lose out on the property anyway.  It’s a tough pitch…  The investor then allows the property to continue on to the tax deed sale and collects the excess proceeds. There are some things to consider before pursuing this strategy. 1.       It’s sketchy.  In order to be successful you basically have to get the property owner to give you their property.  That’s a tough sale to make and there’s not much in it for the property owner. You have to be crafty and a little sketchy. 2.       You have to make sure there aren’t any liens or encumbrances on the property.  After the Quitclaim deed is issued to you, you will be the owner of that property for a period of time. That means you are responsible for those encumbrances. 3.       Not all states give the surplus or excess proceeds back to the property owner.  You need to check with the county before pursuing. 4.       If there is a mortgage or other liens, they may have the first right to the excess proceeds.  For example, if there is a mortgage on the property the bank may be notified of the excess proceeds and be allowed to take all or some of the amount. So there you have it, Excess Proceeds.  It’s a creative tax deed investing strategy but it can be abused.  A lot of people are talking about this strategy online but, in my mind, it is a bit sketchy.  I’m not a supporter of taking advantage of people’s inabilities or ignorance.  Don’t abuse this knowledge.  The county usually will not notify the property owner of the excess proceeds so the property owner will probably lose out on the money anyways.  May I suggest figuring out a way to help them while still helping yourself?  Let me suggest two ways to do it. 1.       Buy the property from the old property owner before the tax deed sale.  Meet with the property owner and arrange the purchase of the property.  Your conversation may go something like, “I’m sorry to hear you’re losing your house… instead of walking away empty handed let me buy your house for $5k/$10k/$20k…”  In order to do this you need to research well and project the final bid and make sure you can make a sufficient profit.  This is tricky but can be done. 2.       Include the property owner in your plan.  Let them know about the excess proceeds opportunity and split it with them.  Let them know that you’ll do all the work if they pay you a percentage.  They’re happy and you’re happy.  You avoided the county auction and made money without using any of your own. No Risk Investor is the ultimate resource and tool for tax lien, deed, and real estate investors all over the world.  No Risk Investor takes incredible pride in its ability to help students take action, get into properties, and begin the journey to financial freedom.  No Risk Investor provides county lists, property lists, online auction lists, comprehensive training and education, an auction calendar, and online auction center, an investor community and much more for its members.