A Case Study: Florida Tax Lien Auction Part I
The following is a real world example of the process of tax sale investing in one of the more popular tax lien states: Florida. In order to thoroughly understand the industry as a whole and get the big picture, it is best to go through all the motions in detail. Also, note that every state has different dates and steps involved in their tax sale processes.
Step 1: Florida Tax Lien Defaults
Real estate taxes are due in all Florida counties on April 1 of the following year. For example, if an owner receives their tax bill for 2008 taxes, say in November 2008, the owner has until April 1, 2009 to pay the taxes. Many times a homeowner will escrow their taxes with the mortgage company so that the taxes do not have to be paid in one lump sum. However, this is sometimes optional and thus leads to defaulting on the taxes.
Step 2: Delinquency
If the homeowner still has not paid the tax by the final due date, the owner will then receive a tax lien notice. That property lien will then be set to go to auction two months later beginning on June 1. Every county in Florida will hold their tax lien auction in June yet the dates within the month will vary.
Step 3a: The Auction
Once the list of tax lien properties has been issued (TaxLiens.com is one source of this information), the liens will then be sold at auction, either in person or online. Most counties with high populations will conduct their auctions online. Other counties will hold their auctions at the county courthouse at the specified date and time.
Step 3b: The Bidding Process
Whether the tax sale auction is held in person or online, the format for the bidding is called ‘bidding down’ the interest. Contrary to a traditional auction, the lowest bid will be the winning bid.
Scenario: Joe Smith bids on a lien for the property at 123 Main Street. The lien amount is $1,500.00. The bids start at 18% interest per year (the max rate for Florida).
Another investor bids lower than Joe at 16%. Joe then counters at 14%. The competing bidder concedes and Joe wins the lien at 14%. After one year of non-payment on the lien Joe would have made 14% on his investment or $210.00.
Ultimately tax lien investing is a micro-economic way to get the highest rate of return on the investment. It is not to own the property.