Florida Lien Sales
What Are Tax Certificates?
In Florida, taxes become due November 1, and become delinquent if not paid by April 1 of the following year. The tax collector in every Florida county then prepares a list of the properties with delinquent taxes and sends out notices to all property owners with unpaid property taxes stating that a tax certificate will be auctioned on or before June1 if the taxes are not paid.
The tax certificate’s face amount consists of the sum of the following: delinquent real estate tax (unpaid amount), interest (1.5% for each of the months of April and May on the delinquent amount), Tax Collector’s commission (5% on the delinquent amount), and the newspaper’s advertising charge (& sale costs or other costs).
Tax certificates are a first lien against property which means there are very few other claims against a property which would be paid before the tax certificate lien. It even supersedes some IRS liens.
The property taxes become delinquent on April 1. On or before June 1 the Tax Collector must start the tax certificate auction (Note: tax certificates and the auction of them is governed by Chapter 197 of the Florida Statutes. All requirements mentioned in this document come from Chapter 197 without the legalese).
To make a simplified analogy, think of the purchase of a tax certificate as a loan you make to the property owner. In return, the investor receives interest on the money loaned. For collateral on the loan you have the right to foreclose and take the property if the owner fails to pay you back by redeeming the lien within the loan term – the redemption period ending two years from the date of delinquency on that lien.
In Florida, the tax certificate conveys no property rights. It is simply a “loan” carrying an interest rate. However, it is a secured loan. The property itself acts as collateral security.
Interest on these certificates begins at 18% per annum. Auction participants enter bids and the certificate goes to the bidder willing to take the lowest interest rate. Simple interest accrues on a monthly basis. If the certificate carries an interest rate of 12%, then interest will accrue at 1% every month until the certificate is redeemed. Once a certificate is issued, providing the redemption of the certificate is after May 31, the least an investor will receive in interest is 5% (Florida Statutes) except when the bid is 0%. A certificate won with a 0% bid earns no interest.
Otherwise, the investor is guaranteed 5% over the life of the certificate, if and only if the certificate is redeemed.. Certificates are good for 7 years from the date of issuance. At the end of 7 years, the certificate is retired (it expires). If the certificate is not redeemed within the first two years the certificate holder can request a foreclosure of the property to recover the amount paid for the certificate plus the interest granted, but must do so within seven years of the delinquency.
If nobody purchases the certificate, it is struck to the county bearing an interest rate of 18%, and may be purchased by visiting the tax collector’s office. Most counties today do not issue actual certificates anymore. The certificate is kept as an electronic file at the Tax Collector’s office.
Now You Own a Tax Certificate, so What Can Happen Next?
- A certificate holder is not allowed to contact the owner of the property carrying the delinquent taxes for two years. Such contact can result in costly legal action.
- When the owner pays the delinquent taxes, the county calculates the interest accrued and sends a check with a notice to the certificate holder.
- The certificate can be sold and transferred (for about $2.25) to another person.
- .In the event the owner does not pay the delinquent taxes, two years from the date of the delinquency (April 1) but no longer than 7 years, the tax certificate holder can request a tax deed application. This process starts the foreclosure of the property.
To foreclose the property, the certificate holder making application for a tax deed pays the Tax Collector an application fee, a title search fee and all amounts required for redemption or purchase of all other outstanding tax certificates, interest, omitted taxes, and delinquent taxes as well as applicable Clerk of Circuit Court fees, relating to the real estate.
In most cases the property is scheduled to go to sale at public auction by the Clerk of Circuit Court within 3 to 4 months from the date of the tax deed application. As a certificate holder you enjoy no particular advantage towards gaining ownership of property – the certificate holder can choose to participate in the Tax Deed auction or not. Since we obtain liens to keep money in circulation at a high rate of interest, rather than to buy a property, we generally suggest not participating in the deed sale.
With a tax deed sale the highest bidder becomes the owner of the property. With non-homesteaded parcels, the opening bid is the amount of the taxes, accrued interest, plus costs and fees involved in a tax deed application. With a homesteaded property, the opening bid is half the assessed value plus the tax certificate face value and costs.
The minimum bid in a deed auction covers the amount needed to repay all expenses of the certificate holder in initiating the foreclosure process plus interest on that amount. In other words, if you obtain a lien in Florida and the owner fails to redeem it, you get the same benefits of your investment back plus interest if you initiate a foreclosure. The exception would be when the property is undesirable enough that nobody bids at the tax deed sale. In that case you get the property for your cost of foreclosure. Any excess proceeds go to the county or to the property owner if the property owner requests them. If nobody purchases the tax deed, ownership is transferred to the certificate holder. Obviously this would mean that the investor did not achieve the desired results, but it would only happen if the investor fails to do the due diligence that goes into bidding on lien certificates.
Certificates that don’t sell at auction become the property of the County and are offered for public purchase at a time and place announced after the auction ends. The unsold certificates carry an 18% interest rate per Florida Statute beginning on the date the certificate was struck off to the County. County-held certificates bear a five percent minimum return guaranteed when purchased from the County and later redeemed. County Held Certificates redeemed within the same month they are purchased earn interest for the certificate holder.