Investing in tax certificates, tax deeds
Question: I am seeking an investment that will bring a set rate of return and minimize risk. I have heard about tax certificates and tax deeds. Should I invest in them?
Answer: First, before making an investment, it is always wise to speak with your legal and financial advisors regarding the investment’s suitability for you. Every year, for various reasons, some property owners are not able to pay their property taxes prior to the due date. When this occurs, the tax collector is empowered to sell a tax certificate to an investor, who effectively pays the taxes on behalf of the delinquent property owner. The tax certificate holder then holds a first priority lien on the property. Tax certificates sales are held in auction format in May every year, with the starting interest rate at 18 percent, then bid downward by those bidding. Investors used to purchase these certificates on the “courthouse steps,” but now tax certificates, tax deeds and foreclosures are all held online. Note that a tax certificate does not give you ownership on the property, rather a lien on the property.
Florida statutes provide that if the tax certificate is sold at any rate (even as low as a percent), the holder is entitled to 5 percent at redemption. However, if you bid 0 percent, that is all you will get back. If the property sells after you buy a tax certificate, the seller is required to pay the tax collector for the amount owed to you, and the tax collector in turn will send you a check for your investment plus interest. Interest is taxed at your normal income rates.
If the property does not sell, in three years you will be able to apply for a tax deed. You would be required to pay the other tax certificate holders and some costs if you do this. After several months, the property will go to tax deed sale. Like the tax certificate auction, the public can bid on the tax deed, and the bidder with the highest price receives title from the county. As tax certificate holder, you will receive all of your funds back with interest. If there are no bidders, then the property will be struck to you as certificate holder.
Tax certificates and tax deeds can be a good investment, but again, it is important you contact legal and financial advisors prior to moving forward.
Eric P. Feichthaler has lived in Cape Coral for 27 years and graduated from Mariner High School in Cape Coral. After completing law school at Georgetown University in Washington, D.C., he returned to Southwest Florida to practice law and raise a family. He served as Mayor of Cape Coral from 2005-2008, and continues his service to the community through his chairmanship of the Harney Point Kiwanis Club KidsFest, which provides a free day of fun and learning to thousands of Cape Coral families, and funds numerous scholarships. He has been married to his wife, Mary, for 13 years, and they have four children together. Recently, he earned his board certification in Real Estate Law from the Florida Bar. He is also a Supreme Court Certified Circuit Civil Mediator.
This article is general in nature and not intended as legal advice to anyone. Individuals should seek legal counsel before acting on any matter of legal rights and obligations.