Three Strategies for the Florida Tax Certificate Auction

With the 2012 Florida tax certificate auctions about to kick off, I wanted to discuss three strategies to employ that should get you higher risk-adjusted rates.

First, the tax certificates on the best properties in the auction usually are picked up by larger institutional buyers and the minimum bid.  This means that the bid all the way down to a .25%.  By statute, the certificate holder will earn the larger of the 5% penalty (earned from the day you purchase the certificate) or the bid rate.  So, these institutions are able to accept the 5% rate and they are betting that the majority of the liens they buy will redeem in less than a year.

If you’re looking to earn more than 5% yourself, you’ll need to bid on properties that these larger players don’t bid or or bid higher rates on.  I’ll discuss three possible strategies that will give you an advantage over these buyers and possibly earn you up to 18% on your investment.

Tax Certificates on Vacant Land

If you’ve subscribed to my tax lien newsletter or read my free e-book, you’ll know that I’m hesitant to recommend buying riskier property types such as land.  However, I’ll make an exception in Florida because land values have gone down so much, there might be an opportunity to cash-in on some good-yielding yet safer tax lien certificates.  This is because the Florida tax assessors have kept up with the property values pretty well.  This brings down the amount of taxes owed on each parcel and thus keeps your investment at a small fraction of the value of the property (usually 1-2%).  Other states haven’t kept up with the decrease in land prices and you might buy a tax lien that’s actually 10% or more of the actual value of the land.

Land is risky because it could turn out that the parcel or acreage you’re buying the tax certificate on is not buildable or zoned in such a way that it limits its value.  You’ll want to do your due diligence and verify that it is worth what the assessor thinks it is worth.

Buying Tax Liens on Less Popular Property Types

Most larger investors tend to not want to spend a lot of time reviewing each property in their portfolio. They also take loans that force them to limit their exposure to certain types of properties.  These are tax certificates held on properties that might have environmental issues such as gas stations or industrial properties.

However, for you as an individual investor, you may find that you are comfortable with these types of properties and are willing to bid on them.  The majority of industrial properties, gas stations, etc are perfectly fine — no environmental issues, hold active businesses or tenants, and are well-located for its type.  You can focus your efforts on properties that were built in the past 10-15 years as most of these properties are well-regulated.

Buying in Rural Areas and Counties

In Florida, there are some very rural counties.  They are away from the high-priced real estate markets in Miami and Palm Beach.  Because they are so small and the areas not as developed, larger buyers tend to not waste their resources on them.  Yet, every county has good properties and an active real estate market.  There might be farmland, timberland or large houses that go unnoticed by most bidders.  You should be able to pick these up at rates in the teens rather than just single digits.

If you’re going to be bidding in the Florida tax certificate auction, I have a list of counties and auction sites here.  You can also look to the right sidebar and see all of my articles about Florida.  Best of luck with the auction!

Top 10 Questions about the 2012 Florida Tax Lien Certificate Auction

With the 2012 Florida Tax Lien Certificate auctions coming up shortly, I’ve compiled a list of most frequently asked questions from my newsletter subscribers about the Florida tax certificate auction. If you haven’t subscribed yet, click here! Florida hosts the largest tax lien auctions in the United States and it’s easy for just about anyone to get involved in since most of the auctions are online.

Top 10 FAQs about the Florida Tax Auction

1. How does the penalty and interest rate work?

Bidding starts at 18% and works in .25% increments until the lowest bidder is reached.  If there is a tie, then the winner is chosen at random.

You’ll actually earn the higher of 5% of the tax amount (the penalty) or the total accrued interest at your bid rate.

So, if you win a bid at 12% and the lien redeems in the first month, you’ll earn your 5% penalty.  If the lien redeems in the seventh month, you’ll earn your accrued interest (which is 7%) and the penalty drops out.

2. What are the typical rates that the liens sell for at the tax auction?

The Florida tax lien certificate auctions are very competitive.  There are lots of banks and funds bidding on these liens such that all of the decent property are bid down to a .25% (thus, they are counting on earning the 5% penalty and the lien redeeming quickly).

Commercial properties and viable land parcels tend to be bid down to between 6-12%.  Risky properties will go in the mid to high teens.  If you win a bid at the max rate of 18%, you probably did a poor job in your due diligence.

3. What is proxy bidding?

In the internet tax auctions, you can put your minimum acceptable bid in.  The system will automatically compare your bid to all of the other bids in the batch.  If you’re the lowest bidder, you’ll win the bid at .25% below the next highest bidder.  Thus, if you bid 5% and someone else bids 7%, you’ll win the bid at 6.75%.

4. Where can I find the auctions online?

Just go to my web posting on the 2012 Florida Tax Auction sites.  I’ll be updating it as we get closer to the auction in May.

5. When can I file for a tax deed application?

Two years after the taxes are due (typically, 22 months after the sale), you can file for the tax deed application also known as a TDA. Thus, you can file in April, two years after the year of the sale.

6. Can I contact the property owner or go on the property?

No, Florida statutes explicitly state that you cannot contact the owner of the property within 2 years of April 1st of the year of the sale.  Also, you have no possessory rights on the property until you have a deed issued.

7. What is a clerk sale?

If the tax certificate does not redeem after you file the tax deed application and the county clerk has made all of their required notices, the clerk will auction off the property publicly to the highest bidder above the total delinquent tax amount.  If the property is not purchased at this clerk sale, then the tax certificate holder will be issued a tax deed to the property (unless it’s a homestead property, see next).

8. What is the lands available list?

If a homestead property does not sell at the clerk sale, the tax certificate holder has the option to send it to a second sale.  If it does not sell then, the tax certificate holder has the right to purchase the property at half the assessed market value minus their investment.  If the certificate holder chooses not to purchase the property, it goes onto the county lands available list where it is available to the public for half the assessed value.

9. What liens are ahead of the tax certificate?

Municipal liens and fines are ahead of the certificate.  Also, a new law passed recently allows HOA fees to not be eliminated upon issuance of a tax deed.

10. Can I really compete against the corporate buyers?

It’s very tough nowadays to get a good rate–gone are the days when you could win liens on decent properties in the teens or high single digits.  Plus, the corporate entities put hundreds of online bidders into the mix so that they have a better chance at winning any ties.

You can, however, find decent rates on commercial properties, some land parcels and the more rural counties where there is less competition.  Or, you can just be content with earning the 5% penalty on good properties–it’s better than what you can earn at the bank!

Get Thrown in Jail – Buy Tax Lien Certificates

One of my first posts was about buying risky properties called the One Cardinal Rule of Tax Lien Investing; however, with some recent headlines in the news lately, I may have to change my one cardinal rule to don’t get thrown in jail buying tax lien certificates!

Bid Rigging at a Tax Lien Certificate Auction

For those new and old to the tax lien auction world, you should take time before each tax lien purchase and make sure you fully understand the rules about bidding in these auctions.  For three New Jersey tax lien investors, they sure didn’t and have subsequently pleaded guilty to felony charges (see this release from the DOJ).

Collusion at the Tax Auction

What is collusion? It’s when two or more investors get together to limit competition at the tax auction.  How does it happen at when buying tax lien certificates?

In most cases, an unscrupulous investor will approach other investors before the auction and get them to agree to not bid on certain tax liens.  It may be as innocent-sounding as someone asking you not to bid on a lien because they know the family that lives there or that they own another tax lien on the property; then, they buy the lien at the maximum rate.

No matter what the reason, it’s a felony under the Sherman Act and opens the investor up to 10 years in a federal prison plus a possible $1MM fine.

Conspiracy before the Tax Auction

Collusion becomes a much more egregious  crime when two investors conspire together and plan out exactly how they will rig the tax auction.  This happened in Maryland a few years ago when two bidders worked out a system to each bid a certain liens between each other rather than fairly competing (see DOJ brief).

The Solution is Simple

Prior to and when you attend an auction, do not discuss your bidding strategy with anyone.  It’s OK to make small talk with your fellow bidders but do everything you can to avoid the topics of what you’re going to bid on and the rates you plan to buy at.  If someone presses you about whether or not to bid on a lien, just tell them you can’t discuss it with them and walk away.

What is an Overbid? What’s Recoverable and What’s Not

This is a frequently asked question by my subscribers and can cause confusion especially because there are different uses for the overbid in some states.

An overbid is simply an auction mechanism to determine who will pay the most for a delinquent tax lien.

The opening bid at the auction is normally the total amount of taxes, fees and accrued interest owed.  The auctioneer then opens the floor for bidding.  These bidders call out amounts that are over and above the opening bid.  A winner is declared to whoever is willing to take the highest amount over the opening bid.

 The difference in price between the opening bid and the final bid amount is your “overbid”.

In most states, should the property not redeem (payoff) and be taken by an investor as a tax deed, this overbid can be collected by the delinquent owner.  States that allow this overbid to be recouped by their former owners feel that it’s a more fair system to those owners losing their property.  However, this mechanism leaves open several potentially profitable strategies we’ll discuss later.

States with Overbids

Numerous states utilize overbid auctions to sell their delinquent tax liens at their annual tax auctions.  However, every state is different in how their laws treat the overbid and it’s worthwhile to read the statutes and auction rules before attending the auction.  I’ll cover some of the differences as we dig deeper into overbids, but realize I can’t touch on every nuance in the law and it’s ultimately your responsibility to understand the statutes pertaining to your purchase.

I’d like to divide the overbid states into two sections.  The first is where the overbid is recoverable if redeemed and collectable by the former owner if a tax deed is struck off to the investor.  The second group are those states where the overbid is not recoverable should the lien redeem.  These states in the second group are not my favorite because you could potentially lose money on your investment if the property redeems. Furthermore, I’ve excluded states that sell a tax deed with a premium as opposed to just the lien.

 Group I – Overbid is Recoverable

• Alabama
• Connecticut
• Indiana
• Maryland
• Missouri
• New Jersey
• South Carolina
• Vermont
• Washington DC

Group II – Overbid is NOT Recoverable

• Colorado
• Illinois
• Mississippi
• Ohio
• West Virginia

Guest Post – Attending a “No Money Down” Real Estate Seminar

One of the main reasons I started my blog was because of my frustration with the lack of good information out on the web about tax lien.  Worse still, there were numerous websites pushing expensive tax lien courses and seminars from “less than experienced” real estate gurus or were outright tax lien scams.  One of my newsletter subscribers Kevin wrote me with his experience with one of these guru seminars.  Fortunately, he was actually able to get a refund for his ‘less than expected’ seminar.

Kevin attended a tax lien seminar from (more…)

2013 Arizona Tax Lien Certificates Auctions

The 2012 Arizona tax lien certificate auctions are just around the corner!  You should start preparing now.  In fact, the Maricopa tax lien list is already out.  The Maricopa tax lien auction is the largest in the state and one of the largest in the US (it comprises of Pheonix and the surrounding area).

See below for a list of Arizona tax lien auction dates and links to the Arizona Tax Lien Sale Websites

I’ve added a schedule of each Arizona tax lien certificate auction (in Arizona, they call tax liens Certificates of Purchase).  Most of the larger counties sell their tax liens online.  However, the Pima County Tax Auction is a live auction (Tucson).  
(more…)

What Everybody Ought to Know about Judicial Tax Lien Foreclosure

Several states especially in the mid-Atlantic and Northeast require a full judicial foreclosure in order for you to take deed to a property.  The largest of these states include New Jersey, Maryland and DC.

While the thought of hiring a tax lien attorney, going to court and paying the costs associated with the tax foreclosure can be daunting to new investors, it actually is a more definitive (more…)

Why Invest in Tax Lien Certificates?

As I always do at the end-of-the-year, I spend time reflecting on past events and more importantly set priorities and goals for the upcoming year.  I have a lot to be grateful for.  This tax lien website has started to gain a good following of devoted readers both online and thru my newsletter. I’m also grateful that I’ve been able to directly keep a number of readers out of trouble—away from bad investments or pricey scams. 

One underlying theme I do get from my reader’s emails and comments is the question about why they should invest in tax lien certificates over other investments?  We could place our hard-earned cash into stocks, mutual funds, bonds, annuities, or even other real estate investments.  But, why tax liens over these other alternatives?

I have five reasons for you.  I’ll open up the comments section on this post if you have other reasons why you think we should (or should not) invest in tax liens as an alternative to these other asset classes.

1. High Interest Rates.  The reason all of us first raised an eyebrow about investing in tax liens were seeing the advertised statutory rates of 16%, 18% or even 24% on your investment. With banks paying 0% and stock market dividends averaging less than 3%, a yield even in the high single digits is appealing. 
2. Safety of Investment.  I have to be careful here, as I don’t want to make it seem like there is no risk involved in tax lien certificates.  People do lose money.  It’s imperative that you understand what you’re getting into before buying your first lien.  That’s why I created my website.  If you do your homework, follow the advice found here, and buy high quality liens, then this investment can be extremely safe with little or no risk of loss.
3. It’s in Your Neighborhood.  Like most real estate investments, you can see the properties first-hand before you buy the tax lien on it.  It could be a house down the road or an office building a short drive away.  Even if it’s a bit further than a day’s drive, the research is easy and you can rely on brokers and online resources to help you out.
4. Most Tax Lien Certificates Redeem. Look, tax liens are not the best way to gain ownership of properties.  The majority—I mean like 99% of the good properties—will payoff before you even get close to getting deed to the property.  This is a good thing.  It means you earned your interest and you get your principal back.  Nothing wrong with that.
5. It’s Enjoyable. The reason I get so excited about tax liens is that it’s fun to invest in.  We can see the properties we’re going to bid on.  We get to see our competition (if the auction is not online) and know that there are others just like you and I bidding on these liens. And, finally, we’re involved in the process—we don’t have to go thru a brokerage or be at the whims of a corporate board.

I wish you the best of luck in 2012 with your family, friends, life and (of course) your investments!

Steps to Take BEFORE You Receive a Tax Deed

Seven “Must-Do” Items Before You Receive Your Tax Deed

When the redemption period on a tax lien property is about to expire and I know I’m going to receive a tax deed, I take several steps in preparation for receiving this tax deed and thus ownership to a property.  In fact, I have a short checklist of items I always think about before the tax deed is issued.  I use this to identify (more…)