Mitch Goldstein | Coach Mitch | May 30th, 2010Jacksonville taxpayers foot the bill for $86,000 investor profit on Shipyards tax lien
Florida Times Union Matt Galnor May 18, 2010
“We just can’t seem to get out of our own way on that project.” Richard Clark, City Council president
When the developers of the twice-failed Shipyards project didn’t pay their 2008 property taxes, two out-of-town investors were happy to pick up the tab – with 17 percent interest and an outside chance at getting the land.
Now, Jacksonville taxpayers will foot the bill for the investors’ tidy profit of $86,000 – enough to pay for two of the 40-plus Jacksonville city employees who’ll be pink-slipped this summer.
The interest is the toughest part for many to swallow of the nearly $600,000 tax bill the city is now covering on the 44-acre site along the St. Johns River downtown.
Knowing everything it knows now, the city might have worked a deal to avoid having those two properties among the more than 33,000 on the block at last year’s tax certificate sale, said Paul Crawford, deputy director of the Jacksonville Economic Development Commission.
The city, which deeded the property to LandMar as part of the 2005 deal, is expected to get the land once the dust settles.
But it [the city. ed.] needs a clear title.
Clogging that title are the two investors, who will have liens on the property if the taxes aren’t paid. And every month, the payoff for the city – and profit for the investors – inches up another 17 percent. [Not correct, 17% is an annual interest; each month the interest increases by 1/12th of 17%. ed.]
“There aren’t a whole lot of investments paying that kind of return right now,” Tax Collector Mike Hogan said.
So the city is cobbling together money from its own investments to come up with the $595,933 to cover the taxes and interest by the end of the month. If not, it will cost another $6,500 by the end of June, and increase every month.
The benefit for the investor is two-fold. First, if the owner pays the taxes, the investor gets the interest. But if the taxes go unpaid after two years, the investor has a stake in the property and can force the Tax Collector’s office to sell it. A foreclosure auction then takes place, with the highest bidder getting the land.
Bankruptcy forces those sales to stop, though, and Hogan said the Shipyards property would not have gone for sale until the court process was finished.
The housing market collapsed and LandMar was late on its 2008 taxes before its parent company, Crescent Resources, filed Chapter 11 bankruptcy.
Because LandMar was a successful, private company, the city wasn’t going to just waive the taxes or pick up the tab on its own, Crawford said.
The Northbank land is wedged between Berkman Plaza and Metropolitan Park, a prime property the city considers a cornerstone for redeveloping downtown.
The property is obviously important to the city or it wouldn’t have paid the taxes, said Hogan, who is running for mayor in 2011.
See entire article: http://jacksonville.com/news/metro/2010-05-18/story/investors-make-86000-back-shipyards-taxes-jacksonville-taxpayers-pay
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Coach Mitch’s REFLECTIONS™
Typical Government Action
The city of Jacksonville, FL could have avoided this financial debacle if they had listened to the previous owners when the city was told that the company could not pay the taxes. Instead, the city played hardball. I don’t blame them for that, but it backfired, and city employees will be laid off because of the miscalculation.
Tax Liens Are Good Investments
If you had any doubt about tax liens as an investment, then this story should clear out any misconceptions. If you do the research, and you are confident of your numbers, then putting your capital at risk in a tax lien is a very good investment.
The Interest Rates are GREAT!
The ROR you can expect is determined by state law and the rates are widely disparate. With the lowest state rate at 8%, Oklahoma, all states have interest rates that beat the banks CD rates by more than double. There are many states where the interest rates are very high: AZ = 16%, FL = 18%, NJ = 19%, GA = 20%, IA = 24%, TX = 25%, IL = 36%,etc. Not bad if you can get it.
Institutions are interested
Interest in tax liens have mostly been an institutional investment. The big players know about the high returns. Lately however, more counties are running their tax lien sales over the internet, and the general public is starting to take notice. About five years ago, Maracopa County, AZ had 18000 tax delinquent parcels with only about 250 folks bidding. Last year, Maracopa County sold out all its tax liens; even the junk.
As a Buyer of tax liens, you had Better Beware
Caveat Emptor is the watchword. Research is the key. A goodly percentage of the property is not worth the taxes that are assessed against it. That is why the owner is not paying the taxes.
Many parcels are not desirable, like a ravine. You cannot build when the slope is 60°. Other parcels will not be commercially viable for a long time. Do you want to pay taxes, year after year, when development won’t happen for 20 years? I saw a lady buy a parcel for $1000 at a tax auction because it was in a high toned development. Unfortunately it was a waste piece and not buildable. I knew that because I had viewed the parcel – she didn’t. Be careful! Know – don’t guess.
Many opportunities
I recall a situation where a developer contacted the tax collectors of many metro areas and found a county that owned a 10 acre tax delinquent parcel which had already been preliminarily approved for a 100 unit PUD, Planned Urban Development. They got that parcel for 10% of its market value. It was a $10MM project. Why would a developer not sell such a valuable property? I don’t know. There are many such stories.
Why does someone give away their equity
The uninitiated ask, (I no longer ask) “Why would someone give away their property?” There are many reasons, mostly logical, some emotional. The biggest concern for you is: don’t make the seller’s problem, your problem.
The bottom line
Tax liens are a great way to enter the market if you are a passive investor. You must do due diligence, and you must be prepared to pay the properties taxes for several years and to then foreclose. If the property is good, then you have a very secure investment with a much better than average ROR.
Coach Mitch’s”Ridiculously Simple System…”
I teach how to invest in tax liens safely. You must know what questions to ask. You must know the answers to the questions before you spend your money. In this area of investment, once spent, your money is gone. Make sure you can get it back – with interest.
As always, I hold your hand while you look to make your future.
See Coach Mitch’s “Ridiculously Simple System…” ™ for details.
Be wise,
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