What happens to the premium at Tax Sale?

In the context of a tax sale, the premium refers to the extra payment made by a buyer over and above the amount of the taxes owed on a property. When a property is sold at a tax sale, the winning bidder sometimes pays this premium as a competitive bid for the tax lien.

The correct understanding is that when the property owner redeems the property by paying off their outstanding taxes, the premium that the winning bidder paid is returned to them. This return of the premium recognizes the competitive nature of the bidding process and ensures that the winning bidder is compensated for their upfront investment in purchasing the lien.

In contrast, the other options present incorrect situations. If the tax collector kept the premium, it wouldn’t incentivize competitive bidding or enhance funding for local municipalities. Similarly, if the premium were distributed to local municipalities or used for administrative costs, it wouldn't align with the established practice of protecting the interests of bidders in tax lien sales. Thus, the correct answer emphasizes the necessary recompense for purchasers who engage in the tax sale process.