Predictions – Investors back off tax liens. Post 129

Tax lien auction still leaves $2.6 million gap for Pasco

St Petersburg Times Florida   May 28, 2009   By Jodie Tillman

It may have been a record, but it wasn’t the one that Pasco Tax Collector Mike Olson was hoping to set: More than $2.6 million in property taxes for 2008 remains unpaid after Tuesday’s tax certificate auction.

“It’s probably record-setting,” Olson said of the figure. “And that’s because of the economy.”

Investors, who pay the outstanding taxes in exchange for liens on the properties, participated in smaller numbers and seemed worried about tying themselves to properties that they’d never see a return on, said Olson.

In better financial times, more bidders jumped in for the tax certificates, especially after the auctions were moved online. That meant more competition, driving down the interest rates. It was good news for delinquent property owners who intended to make good on their bills: They didn’t have to pay as much in interest.

In the 2007 auction, for instance, the average winning bid was an interest rate of 1.72 percent, said Olson. (Investors are actually guaranteed a minimum of 5 percent, he said, but they offer lower interest rates as a bidding strategy.)

By 2008, that average rate had jumped to 8.3 percent.

And this year? 11.3 percent.

In 2007, only 66 certificates were sold at 18 percent interest, the maximum rate that suggests the highest risk. Last year there were 328. This year? 678.

Olson said he has yet to analyze whether certain properties were more or less popular than others among bidders. But investors have an even more difficult time navigating the risks these days.

Buy a certificate on a property whose owner ends up in bankruptcy, he said, “and that beautiful 12.5 percent rate you got will be thrown out by the bankruptcy court.”

Properties with homestead exemptions had been considered safe, he said, because homeowners typically want to pay those taxes off fairly soon – but that’s “in normal times.”

“I held mine [auction] extremely early this year because of my concern of whether there’d be sufficient investor money this year in the state of Florida to cover 67 counties,” he said.

See entire article: http://www.tampabay.com/news/localgovernment/article1002847.ece

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Coach Mitch’s REFLECTIONS™

 

Some TLC’s are in trouble

Tax lien certificates have always been a checkered investment; with some parts good and some parts not as good.

For instance, just a short time ago, the Maracopa County, AZ tax lien sale sold out. Every TLC was sold, including TLC’s against lots far out in the desert, without utilities, nor the prospect of getting utilities in our lifetime. Numbers of TLC’s were sold that are worthless. However, the county needs money and some people naively trust government to do the “right” thing – like sell something only if it has value.

Now, in this economy, in certain areas, we are starting to see the marketplace at work. The great part about the “invisible hand,” as Adam Smith called the free market, is that the market can often be predicted.

Prediction 1

The market prices of property in hard hit areas like Florida will stay down for several years. I have been told that we could see a decade of lowered real estate prices. I hope this estimate is overblown.

Prediction 2

Speculative TLC purchases will be reduced significantly. Private monies will continue to buy most of the TLC’s that are out there, however, there is waning desire to buy TLC’s that are not high quality; in the same way that currently, investors are trying to trade in quality stocks and bonds.

Prediction 3

TLC Investors and tax deed investors are being much more conservative, more careful and implementing strategies that protect themselves rather than waiting for a market change or letting people work out a problem.

This change in attitude will mean that there will be heightened competition for the best tax delinquent properties, but that the other, less desirable properties are going to have less competition. The result will be that TLC investor’s will drop out of the bidding earlier, that they will require a higher interest rate of return and that the TLC holder will be going after deeds more aggressively.

Prediction 4

You would be amazed at the number of TLC holders who automatically buy the same TLC year after year against the same property. These are mostly purchasers for estates.

I predict that beneficiaries will take a hard look at their TLC assets and perhaps decide to foreclose the TLC rather than wait for the tax lien to be redeemed or at least to more closely watch their portfolio. There may even be a spate of lawsuits against trustees and executors of estates who are not performing their due diligence well enough.

The issue is that the property may not be worth the accumulated TLC investment, especially in a lengthy down market.

Prediction 5

For the savvy TLC investor, there will develop a new way to enter into the TLC investing market. You have always been able to offer to buy the TLC asset portfolio of TLC holders, and at a substantial discount. Whereas previously TLC holders would refuse to sell, today they will accept. The times they are a chang-en.

Most TLC investors have the mindset to just buy the TLC’s, let them accrue with high interest, and wait for the redemption.

Little known is that TLC’s become invalid after a certain period. This rule is in many TLC states. In Florida, the law stipulates that an unredeemed tax lien becomes invalid after seven years. I have seen numerous investors continue to buy the newest TLC against a property even after the oldest TLC has become invalid, because it is older than seven years.

These folks are foreclosure adverse. They do not want to foreclose, that is too much work; they are arm chair investors. Yet, they do not want to lose their investment. If you were to offer to buy their TLC’s on a particular property, they might sell. If the interest had been accumulating at 18%, the resulting total might be more than the value of the property. The investor might be interested in getting their principle back and either foregoing the interest or significantly reducing the interest – just to get to cash.

This would be a great way to utilize Coach Mitch’s “famous $1 Option.”™ strategy. Every one of Florida’s 67 counties has many such investors with large portfolios who may want to get to cash. Just investigate and offer to pay them – after you have sold the property.

Prediction 6

Self Directed IRA’s will explode in numbers and in value.

After the average American has been exposed to the enormous value that an SDIRA can bring to their investing mindset – they will embrace the SDIRA as never before.

Imagine having a Roth SDIRA. Using Coach Mitch’s “famous $1 Option.”™ strategy, your IRA (you) options a property with $1, the IRA sells the property for a $20000 profit and the IRA retains the profits – tax free. It would not take very long for the depleted SEP, 401K, or IRA to again wallow in gains.

Prediction 7

Big government, in collusion with big business, has created this mess and they are certainly not going to do anything to diminish their power and reach in the cleanup. If anything, we are seeing a concerted effort by big government exerting ever more control over the economy.

Big business is pushing this process along by demanding and getting what they want. The biggest of the players know that they will be protected and given privileges. For instance, the banks used their bailout monies to buy up more assets versus lending to keep companies functioning and payrolls active.

Prediction 8

Taxes, fees, bureaucracy, and autocracy are going up – way up. And, quality of life will continue to go down.

Prediction 9

Passions will be rising on all sides, partly headline driven, for profits, but mostly driven by frustration with the system.

Curbs on civil rights will continue under O, but taking on a distinct liberal agenda. Tenant advocates vs. property rights, the poor vs. the middle class, and the rich vs. everyone else. Populism will be on the rise, driving anger, with patience almost at an end.

Private property will continue to be assaulted; gun control will be pursued aggressively. The plight of the poor and undocumented will be foisted onto the struggling middle class in the name of “fairness.”

The idea that taxes are “legalized theft” will start to take hold. More and more of the “Silent Majority” will begin to speak out but wanting opposites; less taxation and government intrusion while demanding costly government unemployment benefits, medical aid, and job security. The call for trade sanctions and barriers will rise.

Prediction 10

In some ways O is not acting as the liberal, with no change from Bush policies; continuing the lack of Habeas Corpus and the Bush strategy in the Gitmo trials. People will start wondering: Either O did not understand the terror threat prior to election, OR O did understand and he lied – in order to be elected. Either way, O loses and his credibility is lessened.

See Coach Mitch’s “Ridiculously Simple System…”
⁜ for details.
Go Great Guns,