A common Florida Real Estate Misconception: By owning a tax lien "tax certificate" the lien can be foreclosed guaranteeing ownership of the property for pennies on the dollar.
While this can happen, it requires a very unique and rare set of circumstances to occur.
From researching tax deeds and certificates for years it has been found that this occurs less than 1% of the time which is deeply contrasted to the gurus and resellers of certificates who want you to believe that it is common place.
Lets start the dissection.
Citrus County 2008, 20000+ tax certificates advertised for annual auction with 90% redeemed within the first 2 months with interest payable to holder of certificate being 5%.
Of the remaining 10% approximately half redeemed the property within 5 months.
The other 5% are still being held but traditionally only 1-2% will actually make it to the point of tax deed issuance.
There has been an alarming trend lately on auction sites where certificate holders are reselling the certificates they are holding.
One such online private auction was for a tax certificate held against a very nice home.
Upon review it was discovered that the home owner shorted the tax collector by $67.
00 which resulted in the issuance of a tax certificate which carried 12% interest.
The home value being $350,000 and with the boasted claim of ownership by the person advertising their certificate it had many bidders.
The advertiser also charged a $199.
00 transfer and recording fee.
In the end the certificate sold for $1,500.
The truth is that the end purchaser can expect to gain 12% per year on the certificates $67 face value and the actual cost for transfer is $20.
00 in most counties.
So, if the certificate is redeemed in 1 year the end purchaser will have a nice little loss of $1,623.
96 and redemption will be the outcome in 99% of the certificates issued statewide.
The most likely of outcomes from ownership of any tax lien is a return in the form of interest.
Tax certificate auction bidding begins at 18% and is bid down.
After the certificate has been held for 22 months application for tax deed can be made.
In the process of application all other outstanding certificates must be redeemed.
If one certificate is equal to 3% of property value the redemption of a second certificate is almost always necessary so the investment is up to 6%.
The result of your application for tax deed and redemption of other certificates is a tax deed auction and all costs pertaining to the application and redemption of other certificates are added to the opening bid and reimbursed if tax deed is issued to a third party.
If the property is not redeemed and is homestead exempt the person to be conveyed the tax deed will be required to pay 1/2 of assessed value to the Clerk.
This is NOT a reimbursed expense as it is added to the opening bid but is not posted by the certificate holder.
This is also a rarity as 95% of tax deeds are issued against vacant land.
If no one comes forward and bids higher than the opening bid at the tax deed auction the certificate holder will indeed be issued the tax deed but prior mortgage holders, lien holders and owners still have a recorded interest in the property.
To remove these "clouds of title" you must hold your interest unchallenged for four years and pay taxes OR complete a quiet title action.
An attorney represented quiet title action typically costs $2000-$4000 and can take 6 months.
There may also be superior liens attached to the property that will need satisfying if you become the tax deed issuant.
Lien holders, parties of interest and prior owners can make claim to the auction surplus if there is any.
But, if you were the certificate holder and no one bid at the auction and the property was not homestead exempt, there is no overage for them to claim.
So, if superior liens exist, you will have to negotiate or pay for their satisfaction.
The Florida Misconception rundown: Certificate is obtained for 3% of value, redemption of 2nd certificate usually required add 3%.
Costs of application for tax deed $325 fee to Clerk (estimate), $125 fee to Tax Collector(estimate).
If no one bids at tax deed auction you obtain property for expenses incurred unless property is homestead exempt as of last tax roll then add 50%.
The tax deed is issued, quiet title action cost $2,000-$4,000 to clear title or pay taxes for four years add 12% (estimate).
If there are superior liens they will have to be satisfied before property can be conveyed with warranty of title and title insurance.
While Florida real estate for penny on the dollar purchases have been hyped as common place it is more accurately a rare gem.
Both tax deed and tax certificate investing can be very lucrative, you just have to know where the investment is taking you and pick the one that is right for you.