Tax certificate sale fails to attract buyers

ORLANDO, Fla. – June 4, 2008 – For the first time ever, Central Florida governments couldn’t sell tax certificates at auction.

The problem surprised government officials and negatively impacts local governments’ tax coffers, as well as the homeowners who are delinquent paying their taxes.

The tax certificates represent delinquent property taxes, and local governments get immediate tax income when they sell certificates to investors. In exchange, the investors get the money, once it’s paid, along with interest, which can range from 5 percent to 18 percent. In a tax certificate auction, investors bid an interest rate that they’re willing to charge a homeowner, and the lowest interest rate wins.

As a result of the tax certificate bust, a number of people are hurt – local governments must now adjust budgets based on money they will not immediately receive, and homeowners in tax arrears must now pay the maximum 18 percent interest penalty. Central Florida cities, counties and schools expect to take an immediate loss of about $20 million based on about 15,000 tax certificates that failed to sell.

“I would have thought that most everything would have sold,” says Lake County Tax Collector Bob McKee. “I would have never suspected that this would have happened.”

In earlier years, bidders offered an interest rate of about 5 percent to win the bid, so delinquent homeowners then owed their back taxes plus a 5 percent interest penalty per year. But homeowners with a tax certificate that did not sell at auction must pay 18 percent interest rate to the government per year. Since many of the delinquent homeowners already have financial problems and could face foreclosure, the 18 percent interest represents another financial hurdle.

In addition, many owners are “upside down,” owing more for a house than it’s worth in the market, and it’s unclear how many of these homeowners will just walk away. That represents an additional financial risk, and investors may not consider the potential return on their investment worth that amount of risk.

In Central Florida, the number of tax certificates increased 24 percent since 2007, with 110,000-plus property owners owing more than $320 million.

Source: The Orlando Sentinel, June 4, 2008, Mary Shanklin

© 2008 FLORIDA ASSOCIATION OF REALTORS®

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