The investment process

III. The investment process

1. The Tax Collector is required by law to hold an annual Tax Certificate Sale to collect the preceding year’s unpaid taxes and associated fees. Any unpaid real estate property taxes after a certain amount of time (March 31 in Florida) are considered delinquent. The Tax Certificate Sale must be held within a certain amount of time (60 days in Florida or June 1, whichever is later, after the date of delinquency. An auction (online depending on jurisdiction) is conducted through a competitive bid process from the tax collector’s office (or through a private auction company). Certificates that are not purchased during the annual auction are struck the county and are eligible for purchase by an individual at any time after the tax certificate is issued and before a tax deed application.
2. b. Only 29 states sell tax lien certificates, with Arizona and Florida being the most prominent. California is one of the states where county tax collectors are not allowed to sell tax lien certificates.
3. c. When a tax lien certificate is sold, the property owner can redeem the certificate (meaning pay for the delinquent tax plus the statutory interest).
4. d. In states where tax certificates are not issued at all, the process differs in that a lien is placed on the property immediately after the taxes become delinquent.
5. e. Be advised that we do not recommend certificate holders contact homeowners during the waiting period as this can violate debt collection laws and could result in you being barred from future tax certificate sales.
6. f. In some cases, if the lien holder does not move forward with foreclosure within the period of time specified by their state, the lien could be forfeited and the lien holder could lose their investment.
7. g. Be advised that some states are Tax Lien states, others are tax deed states and others use a combination of the two. Florida uses a combination of the two methods. Shortly after a property owner’s tax obligation becomes delinquent and overdue, the county will auction off the tax certificate to satisfy the failed payment. The homeowner has two years to satisfy the outstanding tax obligation, if that is not done the certificate holder can motion to have the property sold at tax auction.
8. h. On the other hand, in a Tax Deed State, the county itself will foreclose on the property and have the property sold at auction with the starting bid being the outstanding tax obligation, interest and fees total.
9. i. In Michigan A delinquent-tax property will be forfeited to the county treasurer on March 1st in the second year of the delinquency.
10. j. “Forfeiture” just means that your home is going to be foreclosed. In fact, you get about a year after the forfeiture to pay off the debt before you lose the home to foreclosure (Mich. Comp. Laws § 211.78g).
11. k. The foreclosing party files a petition with the court no later than June 15th in the second year of the delinquency (Mich. Comp. Laws § 211.78h). If the taxes go unpaid, the court will enter judgment in late March of the third year of the delinquency and the home is foreclosed (Mich. Comp. Laws § 211.78k). The county treasurer then takes ownership of the property and can sell it to a new owner.
12. l. About 98 percent of homeowners redeem the property before the foreclosure process starts and once a tax foreclosure starts, all but one-half percent of those homeowners redeem.
13. m. The opportunity to foreclose on an unredeemed tax certificate is one that many investors look for. While it is not something that happens regularly properties with outstanding tax obligations that have not been redeemed can be foreclosed upon by the certificate holder and if the minimum bid is not met then the certificate holder investor will take title and ownership to the property. n. When a property has a tax lien, it can’t be sold or refinanced until the past due taxes are paid.

Bidding Process:

1. The auction bidding requirements for tax lien certificates can be found on the tax collector’s website. In order to begin making purchases you will have to register, complete an IRS W-9 form and submit a deposit and/or register a bank account to fund winning bids.
2. At the auction, the starting bid will include everything that you are owed. All the money a certificate holder paid for the tax certificate, the interest you are owed, fees you have paid and court costs will all be used to determine the starting bid. If someone bids at least the starting bid, you will get your money.
3. The auctions may be held in a physical setting or online, and investors may either bid down on the interest rate on the lien or bid up a premium they will pay for it. The investor who is willing to accept the lowest rate of interest or pay the highest premium is awarded the lien. Buyers often get into bidding wars over a given property, which drives down the rate of return that is reaped by the winning buyer.
4. s. The bidding process depending on your state will start at a specific interest percentage. In Florida, the bidding process starts at 18% with bids decreasing the interest rate by 0.25% for each successful bid. The bidding continues in a decreasing manner until an investor wins the bid. As a matter of principle we try to not bid on any certificates that go below a 10% interest rate.
5. Bidding: With a tax certificate sale, the opening bid is usually set at the amount of back taxes, plus accumulated interest and any penalties.
6. Once a certificate bid is won the funds will be immediately drafted against (deducted from) the bank account on file. You will receive a confirmation through the platform hosting the auction along with a letter from the local tax collector or clerk documenting your successful purchase of a tax certificate.
7. The public auction selling the property is referred to as a Tax Deed Sale governed by Florida Statute 197.542. A tax lien certificate holder takes a first priority position as a lienholder owning the Tax Lien Certificate. With a tax deed sale, the opening bid is usually set at the amount of back taxes, plus accumulated interest and any penalties. The price is bid up in increments from the opening bid amount.
8. A tax deed sale extinguishes most liens. For the most part, only liens of record that run with the land, or those held by a municipality or county survive a tax deed sale. An issue exists with whether Homeowner’s or Condominium Association liens or claims are extinguished by a tax deed sale. The prevailing view in Florida is that these liens or claims do not survive a tax deed sale.

Process After Investment:

1. If after two years from the date the taxes became delinquent the Tax Lien Certificate has not been paid off, the holder of the certificate can apply to force a public auction of the property. As an example if 2015 taxes are delinquent April 1, 2016 (in Florida); therefore, a tax deed application may be made after April 1, 2018. When applying for a tax deed, a certificate holder must redeem all other certificates and pay all applicable fees. r can foreclose on the property once the redemption period has expired.
2. If you possess a tax certificate and the redemption period has expired or is about to expire you can begin the process of foreclosing on the debt obligation. To begin the foreclosure process, you will need to contact the clerk of the court for the county where the property is located. The clerk will have the paperwork that is required for you to file the foreclosure. There will be a fee charged, but you will receive that back when the foreclosure takes place. Once the foreclosure is final, an auction date will be set.
3. The application process for foreclosure is governed by Florida Statute 197.502.

Tax Lien Certificates

1. An area of concern with tax deeds (the Risk) is that any particular property could potentially have many years of outstanding tax obligations. Remember, a tax lien certificate is auctioned for every year of delinquent taxes. If taxes have not been paid for six years there could potentially be six different tax lien certificate holders. This would mean that 4 of the 6 owners tax lien certificates could be past the 2 year redemption period available in Florida.
2. In other states the redemption period is a shorter period of time which would mean there could be more holders with matured tax certificates.
3. Be cautious when a property has multiple matured tax lien certificate holders that are past the two year redemption period. When there are multiple matured certificate holders there is a higher probability that the home has not been resided in and/or maintained.
4. Sale price will not match the collective amount of outstanding tax liens on the property. In this event there is a chance that some certificate holders are left with certificates that could never be repaid, if potential buyers are unwilling to pay more than the outstanding tax liability for the property.