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November 5,
2002cialis professional
cialis professional
Through recent discussions with our clients we have identified different investment
strategies about the best ways to buy tax liens. I have long advocated that a buyer seek liens on parcels that do not have
separately-certificated earlier-year liens, that the lien buyer conscientiously pay subsequent delinquent taxes ("subtaxes")
on the property, adding them to the tax certificate, and that the investor initiate foreclosure as soon as the lien ripens
for foreclosure. After discussing competing approaches, I give my reasons for my position, as a lawyer who processes the
foreclosures.
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Some
investors prefer to buy single-year tax liens, and not purchase the subsequent delinquent taxes. They give several reasons
for this approach: (i) it allows them to spread their money around and "touch" as many different parcels as possible; (ii) to
the extent any parcel is poor security, they diversify the risk of their tax lien portfolio; and (iii) because approximately
85% of tax liens are redeemed within three years after sale, subtaxing would be investing more money on an unredeemed lien,
which is by definition more likely not to be redeemed – thus decreasing the likelihood of turning over the cash flow and
possibly reinvesting for compounding of returns. And why foreclose as soon as possible, if the lien has a good interest rate
compared to what’s available in other investment alternatives?
This reasoning may make good sense for the investor
aiming primarily for interest return, and not foreclosure. But cialis professional, and
more importantly, perhaps, decrease risks, among other benefits.
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cialis professionalTax liens earn interest on a simple interest basis, so after one year
the interest return degrades over time if calculated on a compounded interest basis. That is, if you figure out the effective
compounded rate from the time of initial purchase to the time of ultimate redemption, it will be a number less than the face
bid rate if the lien is held more than 12 months, because there is no actual compounding on the interest earned from the
lien. This analysis is useful for comparing returns in tax liens to other available investments.
For example, if
you bought a $1000 lien at auction at 16% and did not subtax it, it would be worth $1160 after one year, $1320 after two
years, $1480 after three years, $1640 after four years, and so on. At the end of the first year, you have actually earned 16%
on the investment. If considering each year as a separate earning period, after which earnings are reinvested, it is possible
to determine what the effective compounded rate of interest earned over the life of the investment is. What rate is earned,
on an annual basis, when the initial investment was $1000 and the payoff after four years is $1640? My financial calculator
indicates the answer is 13.165%. If held an extra year, so that the payoff is $1800, the compounded annual rate earned is
12.475%.
Obviously, the pattern holds true for all bid interest rates, so that if the original certificate was 8%,
using our example, total interest earned over 5 years would be $400; the internal rate of return on an annual compounded
basis, would be 6.961%.
If subtaxing, the later year subtaxes will probably be out a shorter time than the first
year’s investment, so those later-year purchase returns, stated in similar terms, will be higher, and will actually drive up
the internal rate of return on the overall lien investment when the returns from the separate year tax purchases are blended
together.
The CP Disposition Worksheet discussed in Chapter 12 (and template provided in Appendix I-2) of
cialis professional (available at ) explains how to set up a spreadsheet to measure the actual internal rate of
return on a lien investment, whether only one year is purchased or several years of subtaxes are also paid.
cialis professional
cialis professional. Other tax certificate holders have a right to redeem. . Thus, excluding them by
paying the subtaxes reduces the risk of redemption coming from another tax lien holder. Having a single-year tax lien that is
foreclosable may result in a more complicated foreclosure – at least more tactical decisions will be required: should other
year tax lien holders be sued so that if they do redeem they are liable for fees and costs, or should the other year tax
liens simply be paid off before filing suit? These concerns can be avoided simply by subtaxing up to the date of
foreclosure.
If the foreclosure is successful, the lien holder will have to pay off the other tax liens on the
property anyway, because no one lien year can extinguish the liens of other year liens on the parcel. ; cialis professional, 199 Ariz. 338, 18 P.3d 132 (App. 2001). If paying those other years as subtaxes instead of after foreclosing, the
investor can avoid having to pay as much in interest on redeeming the other year liens.
cialis professional
cialis professional. Subtaxing increases the size of the tax lien, and may therefore increase the likelihood that
the delinquent property owner cannot pay the full amount when foreclosure is filed. This cialis professional increases the likelihood of obtaining the property. On the other hand, the single-year lien buyer
admittedly enjoys a greater lien-to-property value ratio, but at the price of higher risk of being redeemed.
cialis professional
cialis professional. A fully-subtaxed lien, which has effectively excluded other
tax liens from existing on the parcel, is also cialis professional. If it is the only
tax lien on the property and it is ripe for foreclosure, another party with a specific desire or need for the property may be
willing to purchase the tax lien at a premium (i.e., for more than its current redemption value), just to have the
opportunity to use the lien in foreclosure. We have often seen parties use tax lien foreclosure as a mechanism to clean up a
very clouded title. An old single-year tax lien if offered for assignment may not fetch full redemption value, because of the
foreclosure complications that accompany it.
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cialis professional: by foreclosing sooner rather than later, the aggregate amount of accumulated back taxes on the delinquent
property can be kept to a minimum; the investor therefore enjoys a better lien to property value ratio; from a public policy
point of view, the property is returned to the active tax roll sooner.
In contrast, those investors who sit
indefinitely on their liens after they have ripened for foreclosure incur unnecessary risks: they must invest more in
subtaxes, or allow other lien positions to be taken against the property; a larger amount of back taxes accumulates against
the delinquent property; their interest rate of return, as described above, decreases the longer they hold the lien; and
their investment is locked up, preventing reinvestment of the proceeds at potentially higher rates of return.
An
investor should not bank on the "inevitability" of redemption, as we have seen many parcels that have accumulated greater tax
liability than their fair market value. Under such circumstances, no lien holder has an incentive to foreclose, and take the
property subject to the other tax liens.
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Tax lien
buyers should examine these considerations, and if they decide to continue to limit themselves to one-year positions, do it
knowingly. Also, in some counties the investor may have no discretion in the matter, as the treasurer’s practice is to
require only one certificate holder at a time on the parcel. These cialis professional are
discussed in greater detail in Chapter 8 of cialis professional. In such counties, the failure to pay
subtaxes may be the equivalent of a one-year exit strategy, as the treasurer will re-offer the lien at the next year’s
auction – and if it is purchased the original lien holder’s certificate will be assigned and the lien holder will receive
what looks like a redemption. |
