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And a Nearly Sure-Fire Way to Lose Money
by Mark Manoil, January 27, 2010
Arizona law contemplates three principle ways to acquire a property tax lien: auction, assignment from the Treasurer, and assignment from another lienholder. The evidence of the tax lien is called a “Certificate of Purchase” often referred to as a “CP”.
Tax lien auctions are required by law to be held during the month of February every year. In our recent report, “,” we explained why we thought the February 2010 auction was likely to be historic in size and provide great opportunities for CP investors. Our expectations were confirmed last week when the delinquent parcel list for Maricopa County was published.
The purpose of this note, however, is to focus on assignments. While bidding at auction results in lower interest rates on the CP, investors who buy from the pool of liens not sold at auction, which becomes available after the auction, automatically get 16% rates on their CPs. Typically the liens to choose from are not as attractive as those bid for at auction, but may nonetheless provide valuable investment opportunities.
A CP is transferable, from one investor to another, by the process called assignment. (Some county treasurer’s offices call this “reassignment”.) All that is required is a notarized sale document signed by the seller and identifying the particulars of the CP: the underlying property’s parcel identification number, the CP number, and the seller’s identifying information.
The sale document, usually also called an “Assignment” or “Bill of Sale and Assignment,” is presented to the issuing county treasurer’s office with a nominal assignment fee (usually $10.00), and then the CP is transferred into the new buyer’s name. The treasurer requires that the buyer be a registered buyer, which means giving the treasurer’s office taxpayer reporting and contact information. (Most county treasurers’ websites provide the bidder registration forms that they require be submitted prior to registering any CP’s in the name of the tax lien buyer.)
The failure to process the assignment on the treasurer’s records could result in a CP redemption check or notice being sent to the prior CP holder.
Pricing on private CP assignments is entirely negotiable, but usually starts with either the amount of principal invested in the original lien purchase, (along with any subsequent taxes paid and endorsed onto the CP), or the current redemption value of the CP, which the treasurer’s office will generally provide in a phone call.
Lately we have observed CP holders offering their CPs for sale on internet auction sites like eBay. In the instances we’ve seen, they describe the liened property in glowing detail, and are careful to explain they are merely selling a lien - and that the buyer undertakes to understand what that means and how the process works.
These internet CP entrepreneurs add one more twist to the assignment formula - they impose a “transaction fee” (we saw several instances of $200 charged) to consummate the sale, in addition to the CP sale price. In this way they guarantee themselves a profit and in practically every case their buyer a loss. Upon redemption of the tax lien, the buyer will only receive back the original amount of the delinquent taxes and accrued interest - none of the “transaction fee.” Since around 90% of property tax liens are redeemed before they even mature for foreclosure, this is an especially low-odds-of-profit way to buy tax liens, and should thus be avoided.
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