Put 45k into a lien buying partnership and got back 46.1k after 31 months

The mechanics you described are the two standard ways bidding compresses lien yields, and they compress it differently.

In premium states, bidders compete by paying above the certificate face. Whether that premium earns interest, and whether it's returned at all on redemption, is set by state law and differs meaningfully between states. Some return premium without interest, some don't return it, and a few apply it against subsequent taxes. Anyone evaluating a state should read that provision directly and have a local attorney confirm how it currently applies, because it's the single biggest determinant of realized yield in a premium jurisdiction.

In rate bidding states, the compression is visible in the rate itself. Competitors bid the statutory rate down, sometimes to low single digits on desirable parcels. That's uncomfortable to watch but it's honest, you can see what you're accepting at the moment you accept it. Premium bidding hides the same compression inside a number that still says twelve percent.

Some states also set a minimum interest amount that applies regardless of how quickly redemption occurs, which changes the math on fast redemptions considerably. Others accrue strictly by time. Your seven month redemptions were painful specifically because your state did the latter.

On the idle capital, that isn't a feature of the asset class. Auction calendars are seasonal and county specific, and operating across more jurisdictions is the usual answer for keeping capital working. A deployment schedule with a return-of-uncalled-capital deadline, which is what you landed on, is a document term rather than a market term. It's negotiable going in and nearly impossible to fix afterward.

I'd put the cause differently from @plumb. The idle time made a bad outcome worse, but it wasn't the cause. The cause is that the strategy the operator was running only works if you never pay premium, and he had 45k he needed to place in a limited number of auction lots in one state. That forces overbidding. The capital size and the geography were incompatible from the start.

Run it: 38 certificates from 45k means about 1,180 average face. In a competitive premium county, small residential certificates are exactly what everyone else is also chasing, and 19% average premium is what the clearing price looks like. He wasn't careless at the auction. He was executing an allocation that could only be filled by paying up.

The fix isn't better statute reading, though you should do that too. The fix is matching capital to the number of jurisdictions you can actually cover. 45k across one county in one state is too much money for the supply of decent lots. Either shrink the check or add counties, and adding counties means travel or an agent, which costs money the four of you weren't going to spend.

Also worth saying: you got your capital back. In this asset class, a bad outcome that returns principal is a different category of bad from one that doesn't.

Asking the thing I'd have been too embarrassed to ask in the room: did anyone in the partnership have a written role for checking the statute, or did all four of you assume one of the others had done it? I've watched that exact gap in a much smaller deal and it wasn't ignorance, nobody owned the task.