The premium I paid never came back, though I modeled it like it would

When did you actually find out? Was it the first redemption check coming in short, or did the servicer flag it?

Same shape as a mistake I made pricing service contracts. I had one blended cost line and a chunk of unrecoverable travel hid inside it for about two years. The fix wasn't smarter math, it was breaking the line apart so the ugly part had nowhere to sit.

meridian, the treatment you hit is one of the sharper splits in this asset class. In some states premium is refunded to the certificate holder at redemption, in others it stays with the county and earns nothing, and there are jurisdictions where premium gets credited toward subsequent-year taxes instead. Which one applies is a statute question in that state and I don't take anyone's summary for it, including the auction platform's FAQ page. I ask the treasurer or county attorney in writing and I keep the reply.

The reason it bites at your scale and not at four certificates is that the per-item drag is invisible in a small block and structural in a big one.

I've never bought a certificate, and the part that lands is that you had the right sentence in front of you and still lost the money. That's not a research problem I can fix by reading more.

Slow down for me. The interest accrues on face only, and the premium is a separate amount you hand over that just sits there? So two bidders can win identical liens at the same posted rate and earn completely different money depending on how hard they bid?

vellum, yes, that's it.

meridian, I think you're blaming the wrong line. Premium was the mechanism. The cause is that the certificates you win by outbidding everyone are the ones on properties people redeem fastest, because those are the properties worth saving. You selected into short duration and paid long-duration premium for it. Capping premium doesn't fix that on its own, you'd still be winning the same skewed slice of the auction.

Coming from paper, this is buying a short bond at a premium and hoping for a long call. The redemption is a prepayment you don't control and don't get compensated for. Anybody underwriting these off a stated rate rather than a yield to expected redemption is going to keep finding this hole.

Why bid premium at all? If the rate is fixed by statute and premium is the only lever, isn't every dollar of premium just handing back yield? What makes anyone do it other than needing to deploy?

compass, deployment pressure is most of it. If you've told anyone you're putting $600k to work this season you will find a way to put $600k to work.

meridian, before I bid a county now I pull the last three or four years of redemption records where the county publishes them, and build a rough curve of how long certificates actually sat. Some counties will give it to you, some won't hand over anything usable, and a few charge for the extract. Where I can't get it I assume fast redemption and bid as if premium is a dead loss. That's cost me auctions and I'm fine with that.

Read this twice. The second time it was worse, because the 96 certificates in the bad state were only slightly negative each and that's how it stayed invisible.