Maryland’s High Bid Premium
Maryland uses a complicated system for their tax sale bidding called the “High Bid Premium” method. This formula determines how much you pay the day of the auction as well as what your effective interest rate is.
High Bid Premium Determines Three key Amounts
Your bid at the Baltimore City Tax sale or most other Maryland tax auctions determines three key things.
- How much you will pay for the property if you foreclose and get the property. This amount is only due, if and when a foreclosure is complete.
- The high bid premium, this premium is added to the lien amount and due the day of the sale
- Your effective interest. You only earn interest on the lien amount NOT the high bid premium.
The High Bid Premium Formula
The formula is, 20% of the amount of your bid, over 40% of the assessed value of the property equals the High bid premium. If the bid is below 40% of the assessed value there is no high bid premium. Presuming the bid is above 40% the formula can be expressed as shown here.
Bid amount – (Assessed Value X 40%) X 20% = High Bid Premium
That’s about as clear as mud, eh?
High Bid Premium Examples
Bid amount $50,000
40% of assessment = $40,000
$50,000 – $40,000 = $10,000
$10,000 X 20% = $2,000 High Bid Premium
Bid amount $70,000
40% of assessment = $62,000
$69,000 – $62,000 = $7,000
$7,000 X 20% = $1,400 High Bid Premium
Bid amount $6,500
40% of assessment = $24,000
No High Bid Premium Due
High Bid Premium Graph
How the high bid premium affects your Rate of Return
The high bid premium is added to the lien amount to get the amount that is due the day of the sale. You earn interest only on the lien amount, NOT on the high bid premium. So a $500 lien with a $1,000 high bid premium reduces your effective return to 6%. On a $5,000 lien, that same $1,000 high bid premium would make your effective interest rate approximately 16.4%. That is a big difference. You need to understand the rules and how they affect you when bidding at tax sale.
You Get the High Bid Premium Back
When the lien is paid off (redeemed) you will get your lien amount, interest on the lien, and the high bid premium will be returned. If you have a successful foreclosure the high bid premium goes toward the price you bid for the property. However if the lien does not redeem and you choose not to foreclose the high bid premium is lost.
Good luck and don’t bid too high.