BiggerPockets

Certificate Strategy 101

Friday, April 13

The Florida annual certificate auction is moving towards us with a vengeance, if you don't have your certificate auction strategy in place for the June 1 offering you will be out of time.  I have a simple plan for cert buying, it is basically to stick to the middle of the road which many investors follow and it works.

By using this technique I have found a better chance of winning the certs I bid on as well as receiving them at a higher rate of interest.

For those new to tax certificate investing you can pick up some free tips, tutorials and about 15 pages of q&a at my site.

Anyways, thought I would share some proof which I used when conducting a consult for an accounting firm.  They were very interested in obtaining  certificates and wanted my input on the process/risks/strategies.  I know accountants trust spreadsheets far more than words so I created the proof they needed to see my point.

The spreadsheet was so effective at getting them to see my strategy and plan; I thought you would want to see it as well.

The below linked page offers more info and link to get a free download of the spreadsheet.  The spreadsheet highlights one counties annual auction from last June.  In that county the tax certificates were auctioned in 15 batches with each batch containing from a few hundred to a few thousand certificates.  As in all counties annual cert offerings, each cert is to be bid on indiviually with introductory interest rate at 18%.  Each bid lowers the amount of interest.  When the lowest interest bid results in a tie the one who bids first wins.

Get the spreadsheet at

Tax Sale Overages

Thursday, October 20

O.K. So I have been getting a lot of questions lately from my website in regards to tax sale overages in Florida, how to claim them, what is true, who to trust, etc., etc.

One of the people in correspondence disclosed that he had paid over $5,000 for a system to assist him in getting those overages in Florida via an assignment.  Why after paying so much was he contacting me?  He was unhappy with the results.

There seems to be two different plans of action being promoted. 

 Plan One is to claim the overage as owner. 

Basically buy the property just prior to the auction, let the auction happen then claim the overage.   This is a valid plan, it can work.  It is however not as easy as it looks, you must learn how to conduct a title search to assure the property is not riddled with liens/mortgages which would be superior to your interest in the overage. Secondly, only the party in ownership at time of public notice can claim the overage, as owner.  This requires the conveyance of the property to be made prior to public notice of the auction.  So, if you wait until the auction is posted in the paper, it's too late.  You will have to get the property before the tax collector certification is posted in regards to the tax deed auction.  So your best course of action is to search the tax collectors records for properties which have 2 or more unredeemed tax certificates.  Buy the property from the owners and wait for the certificate holder to apply for the tax deed.  After application is made, the tax deed auction will occur and you can then claim the overage.   

I.E. Joe sells his property to you for $1 just before the tax deed auction.  The opening bid at the auction is $1.  There is a mortgage of $2 and a HOA lien for $1.  The winning bidder at the auction pays $2.  In this scenario, you as the overage claimant as owner would get zip.  Another scenario, winning bid is $6.  Order of superiority: tax man gets his $1, HOA gets there $1, mortgage holder paid $2, owner gets balance.  Another interesting fact, non owner claimants have 60 days to submit their claim if they do not then they are further barred from making claim for the overage.  So, if the mortgage holder does not make claim, funds are disbursed to other claimants based on superiority.  

Plan Two is to assist the owners in claiming the overage via an assignment to you.  How it works, you contact the owner and have them assign the overage to you.  You give them a flat rate, say $500 and you are entitled to keep a percentage of proceeds and disburse the rest back to them.

This doesn't work.  Here's why.

Background: F.S. 45.031 In any sale of real property under an order, the procedures provided in this section and ss. 45.0315-45.035 may be followed as an alternative to any other sale procedure.

Forward: The prevailing civil procedure for cliaming overage as an assignee would be persuant to 45.033.

Tax Deed Creativity

Wednesday, August 03

Buying tax deeds and foreclosures that are occupied properties is a lucrative venture but many a good deal turns to overwhelming burdon and cost when the occupants will not get out and then upon their departure vandalize the property.  Here is a few creative tips that have saved us many thousands of dollars.

 This Works For Us!

Go to the property and present a copy of the tax deed or certificate of title to the occupant and inform them that you are the new owner of the property. Offer to pay them three hundred dollars and to pack/transport their belongings to a storage facility where we will pay two months of rent. We typically give the occupants three days to prepare. Three hundred dollars is typically more than they will get for the appliances in the house, so they are unharmed. With the thought of cash in hand the occupants are also less inclined to do damage to the house.  But, if this doesn't work then you will have little choice other than removal by force through use of the Sheriff's office UNLESS a creative solution is found.  

Forcible Removing Occupants

If the occupants are removed by force expect: broken windows and doors, kitchen cabinets pulled from the walls, damaged drywall, no appliances, fixtures on the floor, and a copper pipe hanging from the exterior wall where an a/c unit existed a few days prior. If these things are not done at the time of being forcibly removed then expect it shortly thereafter. This will add great cost, time and aggravation to your quest.  Creative Options When occupants are prior owners they many times just became overwhelmed with mortgages, liens, encumbrances and life but want to stay in the home. Some of these people do indeed have jobs or pensions but just couldn't keep up and with their upside down property there was no way for them to borrow against it and forge ahead.  

This scenario screams out "Rent with an option to purchase." One owner recently elected to buy the property from us which was less than he owed previously and it equated to a great savings for him, as the property was now free of the mortgage, and a fabulous profit for us as no property improvement was needed.  It was just a simple matter of signing a one year lease with option to purchase.  And, the rent we charged was 1/2 of what he was previously paying on the mortgage.

Another Example

The man who occupied the home was a renter whom had lost his job as a roofer. We are always looking for people to do roofing and labor so we agreed to let him stay in the house for 2 months fin exchange for working on the house and another we owned nearby . He ended up staying in the house for the two months, worked on the house, found another job, and rented a house from us. A definite win for everyone.  

Conclusion: You can toss them out or find creative ways to save your dollars.  

Sometimes there is no happy creative ending as many occupants will be squatters that you will have to toss to the curb via the Sheriff's department. These will be the people that cost you money as they will not answer the door, park down the street, avoid all contact and cover the windows, forcing you to remove them. These unfortunately are the occupants who will do thousands in damage to the property. Fortunately we have had many great successes by creating options rather than threats. 

Some of these squatters have responded positively to "Hey I am here to give you three hundred dollars will someone come to the door!"  This atleast gets the talk started and one woman said she didn't want her stuff moved to storage but for $400 she would be out in 2 days.  We returned in 2 days her stuff was out, she had moved into a vacant house on the next block, we paid her the $400 and changed the locks.  I guarantee you that had we forcibly removed this woman and her boyfriend the place would have been destroyed but instead Easy and Done. 

Real Estate Game Face, Immediate Gratification

Monday, February 08

It is of the upmost importance that when receiving calls from a potential property seller that your games face be on.  Most callers will want immediate gratification and will demand a price though you haven't yet seen or uncovered any detail of the property.  This is the point at which most deals are lost. 

It can be a difficult challenge for many new investors to meet the callers need for immediate gratification while acting in self preservation.  Price the property to high and you will lose the deal when you later conduct the research, price to low and the caller hangs up, wait to long to return the caller with a potential buy price and they have completely forgotten who you are.This is a juggling act which can be frustrating, but does it really need to be?

By having a set of general rules to follow, knowing how to access public county records and by targeting specific areas, it definitely makes life much easier.  I find vacant land owners to be the most notorious for needing immediate gratification and are in need of your most serious game face.  They call and assume you can pull a magic number from your head.  Most will throw 3 or four details in the air and hope the ball lands on their side of the fence.  I have a 1/2 acre parcel in Wakulla Acres subdivision in Wakulla County, the property is on a paved road, it's a nice lot, what will you pay for my property?  Upon explaining that there are many considerations to coming up with an answer many will just want a price.   

While, yes you certainly have a number in mind, be aware that many are not who they seem.  A number of the callers will not be in possession of the title and will be solicitors wanting your input prior to negotiating a price for their purchase of the property.  If this is the case contact the owner directly and offer to purchase from them.  I have done this and while it stinks for the person who called you, it often turns out that they didn't have a contractual interest in the property. 

Protocol-Never offer a price on the initial call.  I have fallen victim and have done this and many times it turns out badly.  I did throw a price in the air on one property only later to find out the property was zoned commercial not residential as the owner stated.  My price was based on the lesser zoning.  Always get the owner's email address before you hang up.  Always assure the owner that you will return the call shortly and that you will need to conduct a property analysis so as to present the best offer.

Once you have the property identification number or address, take a look at the following web sites in the county of which the property resides. 

Property Appraiser, where comp data, aerials, features, prior sales, and zoning can be found. 

Tax Collector, to find out if there are back taxes owed and to be appraised of any outstanding tax certificates which may have been issued. 

Clerk of Circuit Courts, query the official records where you can uncover any liens, encumbrances, judgments and conveyances of the property.  In many instances, you will be able to conduct these searches in less than 20 minutes.   

Before returning the call, make sure you have your purchase and sale contract in hand.  I always enter all off the information with the exception of price prior to returning the call, the ability to see the goal as tangible creates action.  On the return call don't be bullied.  Post your price and stick to your guns, support your price.  Many sellers will want to haggle, and a little is o.k. but when the prices are so far apart that it is unreasonable I go into the "I pay mode". 

Most property owners have little idea of the actual cost of closings, title insurance, marketing property and even fewer know the process.  "I pay" all closing costs, title insurance, back taxes, attorney's fees, doc stamps, recording fees, and this would cost you xxxx.  If you listed the property with a realtor you would also incur xxxxx of the purchase price. My price is comparable considering these expenses.   I am offering a 10 day closing with no cost to you.  If the answer is still no, which it typically is, inform the seller that you will reevaluate the property and will get back to him shortly.  It is now time to utilize the email address. 

I will add a small amount to the offer and email the contract to them.  Believe it or not, many will ponder a few days and respond. 

Get your prospect list.  I typically run a query of the tax collectors records and send flyers to those property owners who have one year of delinquent taxes.  In Florida, the taxes must be delinquent for 2 or more years before the tax deed can be applied for, until that point the certificate or lien holder is just counting the days until the property is redeemed or they can apply for the tax deed.  I usually compile a list after October 1st.  The reason for this is that 85% delinquent tax payers will pay up within a few months of the tax lien being sold which in Florida is June 1. 

It Works.  One such owner sold me his golf course front lot in a very private neighborhood surrounded by $800k homes.  Within 45 days I resold the parcel to the home owners association for a hefty 39% profit.  Another owner sold me 2 lots, one of which I  sold for the investment made into both and retained the other to pay for my daughters future education.   

Real Estate Deed Trolling, An Effective Strategy, PT 1

Thursday, February 04

Real Estate Deed trolling is a great investment strategy that works. I am sure that some guru out there will pick this title up and use Deed Trolling as the name of his newest real estate investing system or book. The truth is there would not be a high demand for a system called: get an upcoming tax deed auction list, contact the owners because they are on the verge of losing the property and will agree to sell the property for cheap, once purchased you can resell and put the profit in your pocket.

In real estate deed trolling there are some key things you should know so that this strategy works for you. Much like trolling for fish you will need:

A VESSEL to get you underway "yoho yoho an Auction List indeed"
FISHING POLE AND LINE"shiver me timbers it's an O&E Report, Tax Deed File Data, and Appraisers records you need"
HOOK "fast acting title agent to handle closings"
BAIT "well prepared script and mailer"
And with the right presentation the fish will come forward and sell their property to you.

This article will focus on Florida and be very specific but this strategy can be used in many states.

Number one thing to do for real estate deed trolling is to go to the County Clerk of Circuit Courts website or office, in Florida. They are responsible for auctioning of tax deeds and this where to get your list.

Note: With a 2008 Statute change many counties are gearing up for online tax deed auctions which will make access to information and lists even easier. As of November 2009, there are currently 11 of the 67 counties in Florida which have contracted with auction host, real foreclose, to handle the online sales of tax deeds. Charlotte county is most actively conducting tax deed auctions online.

Follow this progression to see a current list of tax deed properties coming up for auction in this county. Google (Charlotte County Florida Clerk) Once on their homespage see the searches button-click it. Scroll down to find Tax Deed-click it. Run a search by sale date; see Search Results button at bottom-click it. On the returned list click one of the certificate numbers returned. On the next page click, O&E Report. You are now looking at a document within the tax deed file, the Owners & Encumbrance Report.

Continued on PT2

Scam Affecting Tax Deed Investors PT 1

Thursday, February 04

How has one of the largest real estate schemes in Florida affected you as a tax deed investor?  Though the scheme took place in 2003-2006 its affects are still being felt today through out Florida’s tax deed investment community.  Title insurance underwriters are very reluctant to issue title insurance when a tax deed is found in the chain of title even if a suit to quiet the title has been granted. 

Who can blame the title insurance underwriters? With the typical value of property being less than $15,000 and the underwriters typically receiving $30 per $1000 of insured value it equates to little money for them with an increased risk.  The perceived risk is in large part due to the happenings of 2003. 

In 2003 Sky Development Group LLC turned the real estate world upside down, executing one of the largest Florida real estate scams with diligence and authority. 

The charges brought against them read like a Steven Spielberg movie script born of international fraudsters who ultimately have not been incarcerated for their estimated $200 million dollar scam and who returned to their native country unscathed.  In the wake of their business practices there have been a large number of property owners, commercial lenders, title underwriters and investors holding the remnants of what we believed to be a secure system of checks and balances.

Sky Development Group, LLC began recording fraudulent deeds for vacant subdivision lots in Citrus Springs in or about 2003.  With conveyances of up to 500 lots on a single deed and with some legitimately conveyed to them, it really did not throw up red flags as some of the lots were also scheduled for the auction block at the tax deed sales. 

Once the deeds were recorded the properties were mortgaged.  In fact, Kennedy Funding Group mortgaged hundreds of lots which they began foreclosure proceedings on and ultimately sold their interest in the lots to Citrus Ventures LLC.  Citrus Ventures being owned in part by a Kennedy Funding executive, the interest was conveyed by assignment of bid prior to the foreclosure auction occurring.   These parcels are still listed as being for sale on the Kennedy Funding website, accurate as of January 2010.

Upon Sky Development mortgaging the property, there were very large ad campaigns promoting their homes and preconstruction pricing.   Partnerships were formed with legitimate developers who were equally unsuspicious. 

To further hide the scam an unlicensed title agency was opened by the executors of Sky Development which allowed them to further stretch their ability by issuing unenforceable title insurance and creating less scrutiny over funds held in trust while selling parcels over and over again.   Deposits were taken for pre construction of homes, funds were placed in escrow by buyers of vacant parcels and homes, payments were being received, additional mortgages were obtained against Sky receivables and, of course, these escrowed funds were held by their title agency.  Thus, a funnel was created whereby hundreds of fraudulent deeds were poured in and huge profits were the product created.    

While the Sky Development Managing Member and his wife enjoyed the finer things of  entertaining in their waterfront mansion in West Palm Beach and taking weekend cruises in their yacht, the real estate world of checks and balances became a legal tangle of who owns what.  

Continued in PT 2