Posted over 10 years ago

Future of Tax Liens - big financial firms vs individual

Is the linked article a precursor to what is to come? Encore Capital in San Diego purchased Propel Financial Services of San Antonio, Texas. Propel buys property tax liens from local governments and then works to collect the outstanding taxes on their own.

There is no individual investor opportunity.

Encore said Propel only buys Texas liens right now, but they plan to expand to other states in the future and grow the business.

The article link:

We all know the advantages of buying property tax liens and earning above market rates of interest on relatively safe and secure liens. The big boys see that opportunity as well and this article shows they plan on moving in to grab their huge share.

With approximately $8 billion dollars in property tax liens up for sale annually, there is plenty of "opportunity" for big capital players. They have the money to buy whole issues of certificates from a county or city.

On the east coast many cities, not counties, administer the tax lien sale. It's much easier to package the liens together and sell them to one firm, rather than go through the expense of holding a public auction.

The city gets all the money up front, and for minimal expense. The financial firm gets an entire inventory of liens at a discount in the bulk purchase, and then gets to collect the maximum interest and fees.

Even with the clunker liens, the discount and maximum interest collected on the good liens will cover the losses. And the firm buying the liens still does get to review the liens and can throw out the obvious losers before purchasing.

They sky is not falling yet. I'm just pointing out what I see beginning to happen as the financial industry recognizes the returns they can capture with property tax liens. This is a fragmented market with no central clearing house like a stock or future exchange. There is a lot of operational expense to administer the collections of the liens.

But with central processing and more electronic capabilities thrown at the industry, there is a golden opportunity for big players to take over the industry. Encore Capital is but one of a growing number of firms that are moving in.

Many factors can affect how slow or fast financial firms move in. If inflation rears its ugly head and rates soar, the fixed interest rates of property tax liens may become "low" comparatively speaking, and the big players will move on.

One day a future billionaire will create that central clearing house for tax liens and liens will be grouped together like mortgages and sold in pools on open exchanges. I saw it happen to option contracts, mortgages, credit card debt - it will happen to property tax liens at some point.

But that is a topic for another post...

Comments (1)

  1. Good post. Agree that's it's only a matter of time before these become commodities that are a part of open exchanges.