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Why Should I Subtax My Certificate of Purchase?

May 18, 2009

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On or after June 1, existing certificate of purchase holders have the first right to add the next delinquent year's taxes on the parcel to their certificate. The additional tax amounts will bear interest at the original bid rate on the CP. There are several considerations to keep in mind when deciding whether or not to pay subsequent delinquent taxes on a certificate of purchase. The decision can impact both the likelihood of CP redemption and successful foreclosure. The reasons to pay the subsequent taxes are:
• Third parties (including a holder of a different year tax lien), who would have a right to redeem your tax certificate, are kept to a minimum;
• To avoid having your tax lien involuntarily assigned and sold out from under you (at the next tax auction);
• Allows you to invest more capital, earning your additional bid rate of interest, without substantially more investment research; and
• Having more years covered by the certificate essentially increases the cost of redemption of that tax certificate and therefore decreases the likelihood of redemption, so that ultimate foreclosure may be more possible.

The reasons why you might not want to sub-tax:
• your desire to be cashed out of your investment, allowing the next delinquent year to go to auction, in some counties increases the chances that the subsequent delinquent tax lien buyer will have to buy out your lien position; and
• you may wish to conserve capital and spread it around into as may tax lien investments as possible by buying only one-year tax liens.

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