Tax Certificates and Tax Deeds: Real Estate Roulette

Gregory S. DeMeuse, Esq., Real Estate Law

Floridian property owners can count on a real estate tax bill, every year in November, and most dutifully pay those bills.  Even more responsible property owners may pay before December 1, to take advantage of a four percent discount afforded to those who pay far in advance of the March 31 deadline.  But what happens to those who are delinquent—to property owners who neglect to pay their yearly property tax bill?  Well, that’s when things get interesting.  That’s when some people gamble in the unpredictable realm of tax certificates and tax deeds.

The action begins at the end of May each year.  For those properties which the previous year’s taxes are unpaid, the county tax collector holds an online auction for the purchase of a “tax certificate.”  A tax certificate represents the amount of taxes owed by the property owner for the previous year (plus certain costs and fees), and gives the purchaser of the tax certificate the right to collect the amount of unpaid property taxes for that year, plus interest.  An auction begins at an 18 percent interest rate and continues by bidding progressively lower interest rates.  The winner is that person who bids at the lowest interest rate.  He or she becomes the holder of the tax certificate on the property, and has an enforceable first lien against the property for unpaid real estate taxes.

After the tax certificate auction, the waiting game begins.  The certificate holder waits for the property owner to pay the tax bill, plus interest, in order to reap the benefit (interest) from investing in the certificate.  However, it could happen that the property owner never pays that delinquent tax bill.  In that case, the certificate holder must await payment for two years from the delinquency date (but no more than seven years).  During this period, the certificate holder is precluded from entering the property or intimidating the property owner into paying the debt.  After this period expires though, the certificate holder may finally seek to recoup his or her investment in the tax certificate.

The certificate holder’s next move is to file a tax deed application with the County Clerk of Court.  This application specifies the current record owner(s) of the property, the property address, the assessed value of the property, and whether there is a homestead exemption on the property.  As a prerequisite to filing the tax deed application, the certificate holder agrees to pay all delinquent taxes, to pay off all other outstanding tax certificates with interest, and to pay the current tax bill due on the property, plus administrative fees and costs.  Effectively, the tax deed application lays the groundwork for selling the encumbered property and utilizing the proceeds to pay the certificate holder for the unpaid debt.  Additionally, the certificate holder may use this process to gain an ownership interest over the encumbered property.

Once the application is processed by the Clerk of Court and proper notice is served, the final event involves auctioning off a tax deed to the property.  Unless the owner “redeems” the tax certificate by paying all unpaid taxes, interest, plus costs and fees prior to the tax deed sale, the auction will ensue with the opening bid.  The opening bid for non-homestead property is typically the amount paid to apply for the tax deed, plus the amount required to redeem the tax certificate, and all costs and fees paid by the applicant.  The opening bid for homestead property is increased by at least one-half of the latest tax assessed value of the property.  Anyone can participate in the tax deed auction, with the highest bidder being issued the tax deed upon receipt of payment by the clerk within 24 hours.

Even if the certificate holder is the highest bidder, or there are no bids and the holder gets the tax deed by default, the odds of getting good title from a tax deed are far from perfect.  Potential bidders should assess the ownership and encumbrance report, which provides chain of title to the property and discloses any liens and mortgages of record.  Bidders should view any major liens or title defects as reducing his or her chances of getting good title.  Liens held by state, municipal, or county governmental units are not eliminated by tax deeds, and many easements will remain on the property, such as those for drainage, utilities, or ingress/egress.  Further, title based on a tax deed is generally not insurable until four years after issuance; and even then, only upon meeting certain conditions.

Certainly, rolling the dice on tax deeds or tax certificates is rife with risk, and should only be done after proper research and consultation.  County tax collector websites provide helpful resources for those interested in learning more about tax deeds and tax certificates, as do third party websites that host the online auctions.  To those who choose to play real estate roulette, be prepared and best of luck!

Please contact our real estate department for a consultation regarding tax deeds and tax certificates. To contact Greg, please call 941.748.0100 or gdemeuse@blalockwalters.com.