Tax lien investors who bid on liens for the purpose of making money when those liens are redeemed often want to avoid states in which bidding is accomplished not by declaring a stated amount that one will pay for a lien, but rather how little interest one will accept on the debt. After all, if a lien is “bid down” to a very low interest rate then a tax lien investor will collect less money when that lien is redeemed by the homeowner. Bid low enough, and the lien is not worth the trouble.

In order to attract tax lien investors to their auctions, states that use a bidding-down structure for their property tax auctions may install a “safety net” to keep investors interested in their properties. This safety net takes the form of a minimum penalty to the owner when the tax lien is redeemed. For example, Florida has this type of safety net: a minimum penalty of 5%. This means that if you bid on a tax lien in Florida and you win with a bid of 3% interest, then you will get an additional 5% interest on that lien as a minimum penalty. Of course, you will need to check the fine print. There may be rules governing how long the lien must be delinquent before the penalty kicks in or even on how much of the lien can be assessed for a penalty. Either way, however, the investor will get more than just the low initial interest bid.

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