How "Bid-Down" Procedure is used at Iowa Tax Sales

The June 16, 2008 tax sale in Polk County, Iowa, was noteworthy because of the unusually large number of tax sale certificates that were sold to "bid-down" bidders. Iowa Code Section 446.16(1) authorizes bid-downs. In Iowa, tax sale certificates are sold for the total amount of taxes, interest, fees and costs due. Normally, the purchaser receives a certificate that establishes a lien on a 100 percent interest in the subject parcel. However, where more than one bidder desires to purchase a certificate for a particular parcel, the certificate is sold to the bidder who offers to take a lien on the lowest percentage interest in the parcel. For example, if a certificate is sold to a bidder with the lowest bid-down percentage of 25 percent, the certificate establishes a lien only to an undivided 25-percent interest in the parcel.

If the parcel is redeemed by the owner by paying the total amount due, it makes no difference whether the percentage lien interest was bid below 100 percent. The certificate holder will still receive interest at redemption at the standard rate of two percent per month or portion of a month. However, if the parcel is not redeemed and the certificate holder forecloses on the certificate and obtains a tax deed to the parcel, then there is a significant difference between a 100-percent lien and a lien for less than 100 percent. The tax deed conveys ownership to the certificate holder of an undivided percentage ownership interest equal to the bid-down percentage. For example, if the bid-down percentage was 25 percent, the resulting tax deed would only convey a 25-percent ownership interest in the parcel. The former owner would retain ownership of the remaining 75-percent undivided interest.

When a tax deed is given for an undivided percentage ownership interest there is a strong possibility that a dispute may arise with the owner of the remaining undivided ownership interest. The two owners have the legal status of tenants in common. If they cannot agree on how the parcel is to be used, then the only practical legal remedy is for one of them to file a partition action in the district court. A partition action provides for the court to oversee procedures for the sale of the parcel and the distribution of the net proceeds to the two owners in proportion to their percentage interests.