Investing
In
Florida Tax Certificates
BY K.E. SEPULVERES
Copyright
2011 K.E. Sepulveres
Smashwords Edition
Smashwords Edition License Notes:
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Contents
CHAPTER 2: Why Are There Tax Sales and Who Are The Property Owners
CHAPTER 3: Tax Certificate State vs. Tax Deed State
CHAPTER 4: What Is the Interest Rate
CHAPTER 5: Tax Deed Applications
CHAPTER 6: Differences between the Two Types of Certificate Sales
CHAPTER 7: Where to Get the Information
CHAPTER 8: How to Interpret Property Information
CHAPTER 10: Is There Leverage in the Type of Auction You Attend
CHAPTER 11: Who Is Buying What
CHAPTER 12: Creating a Bid Book
CHAPTER 14: How Do You Make Money Buying Tax Certificates
CHAPTER 15: Lessons in History
CHAPTER 16: 2011 Tax Sale Analysis
CHAPTER 17: 2011 County Information
Is the day of an 18% return on tax certificates gone?
You’ve watched the ads on TV and heard about the strategies to make thousands of dollars buying Tax Certificates. Many people are looking for the good life and spending big money on these books and tapes. Is this too good to be true?
Buying Tax Certificates will not make you an overnight millionaire. Let me repeat: buying Tax Certificates will not make you a millionaire. This is not a substitute for a job. Buying Tax Certificates allows you to invest discretionary funds for a better return than what is now available at most banks. Buying Tax Certificates can be considered an Alternative Investment Strategy yielding above average returns with relatively low risk. Can you make money? Absolutely! Can you lose your money? Yes, there is always that risk.
In Florida, no longer does one go to the county’s Tax Certificate Sale, along with 10 or 20 other individuals, and quietly, but aggressively bid 18%. Financial institutions have dominated the tax sales for the last 15 years. Their strategy was to bring in 50 or more individuals all bidding on the same certificates, but at a much lower rate of interest.
Then, approximately 12 years ago, the onset of quarter bidding arose. That is, bidding a quarter of 1% or .25% on each prime certificate. Individual buyers sat shaking their heads wondering why. The financial institutions knew that Florida has a mandatory 5% interest rate. By law, no first year certificate can earn less than 5% interest. Individuals began lowering their bids but were finding the only items available at their interest rate were higher risk certificates.
This change was followed by the move toward online auctions. At today’s Florida Tax Certificate Sales, all but 12 counties are held via the internet. The rules are the same but the bidding process for the individual has been altered.
This book is designed to take you through today’s tax certificate purchase process in the state of Florida. You will learn who buys, why they buy, what they buy and how they buy. With this knowledge, you will be able to make an informed decision as to whether buying tax certificates is right for you. This information is provided as guidance only and does not constitute legal advice of any kind. If you need legal advice, please contact your attorney.
What will be presented is the truth about buying Tax Certificates. You will learn the details of how a Tax Sale really works, where to get the information, how to read and use the information, how to do the due diligence. I will go over the risks, the costs and the potential profits. I’ll hope to answer all your questions, including the ones you didn’t know you should be asking.
CHAPTER
2
WHY ARE THERE TAX SALES AND WHO ARE THE PROPERTY
OWNERS?
Tax sales occur when a property owner does not pay his property taxes in a timely manner, dictated by the state in which the property is located. Some years ago, multiple bank mergers caused many mortgaged properties to go to tax sale due to the banks being unable to keep up with the escrow paperwork. Today’s tax sale properties are, for the most part, wholly owned by an individual or corporation; with less than a handful in the state having a mortgage. Be diligent when the property history shows a mortgage as it may be caused by a foreclosure action rather than a mortgage company’s oversight.
The individual property owners come from all walks of life. From the family man/woman caught up in hard times, and the Grandma who thought because the mortgage has been paid she was now exempt from paying the taxes, to the investors of rental properties, to companies and individuals who use this action as a short term “loan”.
CHAPTER
3
TAX CERTIFICATE STATE VS. TAX DEED STATE
Florida is primarily a Tax Certificate state. Many people are unclear on, or interchange, the definition of a Tax Certificate Sale and Tax Deed Sale. The difference is that at a Tax Certificate Sale you are purchasing a lien on a specific year of unpaid property taxes. For doing so you will receive a high rate of interest for a specific period of time. At a Tax Certificate Sale you are not purchasing the property and you have no legal rights to the property.
If you were buying in a state other than Florida that holds Tax Deed Sales, you would be buying the rights to the property after a specific, redeemable period of time determined by the state. If the property owner pays the unpaid taxes prior to the end of the allotted redemption period, you will receive a refund of your money with interest. If the property owner does not pay within the redemption period, the state will issue you a Tax Deed and you will be the new owner of the property.
Purchasing a certificate at a Florida Tax Certificate Sale means that you agree to pay the taxes for a delinquent property owner and in return, hopefully, receive a higher rate of interest than you would currently earn at a bank. You are not buying the property. You will have no rights to the property. Your initial investment, with interest, is returned to you by the Tax Collector when the property owner redeems your certificate. Statutes prohibit you from approaching the taxpayer, either physically or by writing, regarding the redemption of your certificate.
Again, Florida is a Tax Certificate state. Chapter 197 of the Florida Statutes governs the procedures for Tax Certificate Sales and for Tax Deed Sales. Yes, Florida has both. The complete statute can be found at www.leg.state.fl.us/statutes.
By Florida’s law, beginning on or before June 1, the Tax Collector of each county is required to hold a Tax Certificate Sale. The certificate represents a lien on unpaid real estate property taxes. The amount of the certificate is the total sum of the unpaid real estate tax and the assessments, penalties, advertising costs and fees. Tax certificates are a first lien against the property and shall supersede governmental liens. Florida Tax Certificates have a seven year life span.
So, what is the difference between a Florida Tax Certificate Sale and a Florida Tax Deed Sale? In Florida, all unpaid property taxes must first go to a Tax Certificate Sale on or before June 1st following the year’s delinquency. For example, if a property owner did not pay their 2010 taxes that are considered delinquent on April 1, 2011; these taxes would be included in the advertised Tax Certificate Sale listing on or before June 2011.
Now, in order for a property to be auctioned at a Tax Deed Sale, it must first have had a Tax Certificate issued that has not been redeemed. Two years after the April 1st delinquency date, the Tax Certificate holder can make a Tax Deed Application on all their unredeemed certificates which will allow the property to be included in the Tax Deed Sale. Generally, the Tax Deed Sales are held monthly; with some of the larger counties having weekly sales. The Tax Deed Sale is held by the District Clerk’s office. With the internet expanding and the laws changing, some counties are now holding their Tax Deed Sales via the internet.
To recap - unlike many other states, Florida has a two-part process. The first sale is for the Tax Certificate and the second sale, two years later, is for the Tax Deed. At the Tax Certificate Sale, the certificate is auctioned with the winner being the person willing to accept the lowest percentage rate. Florida’s rate begins at 18% and goes down in ¼% increments. Each January, the county will send you a 1099 Misc Income Form for the interest you received on all the certificates that have redeemed the previous year.
If the certificate does not redeem within 22 months of the sale, or by April 1st of its second year, the certificate holder can make a Tax Deed Application on the property. This action allows the property to be sold at a Tax Deed Sale. Here the property is auctioned to the person willing to pay the highest amount for the property. In most cases, the certificate holder and the tax deed winner are never the same person.