5) Over-the-Counter Investing
November 1, 2020
7) Tax Lien and Deed Auctions
November 1, 2020Hi. Let’s talk about counties and county workers.
It’s important to understand what roles the county and state governments play in tax lien and deed investing. It’s also important to understand individual offices within the county; two primarily, the Tax Collector and Property Appraiser.
The state is important to us because the state statutes largely determine how tax sales will operate inside that state. In most cases, the state determines the system used; tax liens, tax deeds, or redemption deeds. The state will also determine when the sales will occur during the year and the auction method; most common are bidding down the interest rate and premium bidding.
Each county within the state has some liberties, but they must operate within the bounds set by the state statutes. For example, the state statute in Florida determines that the tax sale must be held before June 1 of each year. Taxes become delinquent if unpaid between February and April of each year, so the county needs to schedule their auction at some point after they’ve determined the taxes to be delinquent but before June 1.
Elected officials manage the county government, and some offices play a role in the tax sale process. A few of the officials that you may come across are the Tax Collector, the Property Assessor or Appraiser, and the Sheriff. The Tax Collector, or sometimes also called the Treasurer, will typically be our primary resource at the county, but we use the Assessor to get more information about properties. The Sheriff is often responsible for the tax deed sales. In that case, the tax sale is referred to as a Sheriff’s sale.
The Tax Collector
As tax lien investors, we will likely interact with the Tax Collector, or their website, more than any other department.
The County Tax Collector’s primary duty is to receive, account for, and safely keep the revenues of all public monies of the county. They also invest the surplus funds held by the county. They distribute the monies collected to the property recipients and they pay the county’s bills as directed by the County Board. They’re also responsible for the taxation of all personal and real property within the county. They send out the tax notices, delinquency notices, and tax sale notices.
The Tax Collector also typically oversees the tax lien sales. It is generally the Tax Collector that we contact when we want to buy a tax lien or deed over-the-counter, which we will discuss in a later training video, but we primarily use the Tax Collector for their website to track down information about potential tax lien investments and sales.
The Tax Collector will have information about the current tax lien certificate and past tax lien certificates; if they were redeemed and when. We will discuss why that’s important in a later training video.
The County Assessor or Appraiser
The County Assessor is in charge of establishing a property’s tax assessed value. This is different than the market value, which is determined by what buyers are willing to pay for a property. The Assessor will put a value on every piece of real estate within the county. They determine the value by considering both the county’s budget needs and also the fair market value of the real estate.
Why is the Assessor important to us?
The most important thing for us is that property records are typically stored with the County Assessor and made available on their website. When we are researching potential investments, and if property acquisition is a possibility or certainty, then the property records will be important to us. Those records will typically include images of the property, present and past property values, the physical address, sales history, the property description, and other encumbrances on the property.
How are properties assessed?
Properties are assessed using one of three methods: market, cost, or an income approach. Most Assessors use a computer assisted mass appraisal system to evaluate every property in the county, but let’s quickly go through each of those methods.
Fair market value has been defined as the price a willing and informed purchaser would pay to an unrelated, willing, and informed seller where neither party is under compulsion to act. A good way to judge that value is by checking the prices of recent sales of comparable properties. That’s where we get the term “comps.”
Some people will use Zillow or other websites to get a quick look at comps or estimated property values. The key word there is “estimated.” Although Zillow has been known to be right on, it also can be off by quite a bit. So it’s good to get an idea from Zillow, but it shouldn’t be treated as absolute truth.
Where recent comparable property sales are not available, a cost-based approach may be used. In this approach, the original or replacement cost of a property is reduced by an allowance for decline in value (depreciation) of improvements. Replacement cost may be determined by estimates of construction costs.
The final method for establishing an assessed property value is the income approach. Using the income approach, value is determined based on the expected income from the property. This may be used on farmland where crops produce revenues each year. So the Assessor may choose to include potential income for that property as a source of property value.
The Sheriff
We don’t often interact with the Sheriff’s office, except when we start participating in tax deed sales or Sheriff’s sales.
We typically don’t seek their office or website for information aside from perhaps the scheduling of their sales or for seeking a list of properties available at the auction.
In Florida, for example, after a tax lien certificate has gone through the redemption period and remains delinquent, meaning the property owner still has not paid the property taxes, the tax lien certificate holder has the option to foreclose to take ownership of the property. When the tax lien certificate holder does this, the county attempts to sell the property one last time – the tax lien certificate holder does not have an option on this – and when the county tries to sell it, it’s done by the Sheriff. If someone were to purchase it, then the certificate holder is paid back plus interest and penalties accrued to that point. If the certificate holder really would like the property, they can attend the public auction, babysit the property, and if it appears it will be sold, they can participate in the auction and purchase it. They will pay the full purchase price determined at the auction, but they will still get their money back plus interest separately as the tax lien certificate holder.
If the property is not sold at the Sheriff’s sale, then the property is deeded to the tax lien certificate holder.
Summary
Working with counties and county workers is a necessary part of tax lien and deed investing. Increasingly, all research can be done online and actual communication with the county is rare.
Get comfortable browsing county websites and finding important information about your investments. The more you practice the faster and more efficient you’ll become.
