Typically, they include:
A registration form,
A W-9 form, and
A deposit.
Registration Form
The registration form can be obtained at the county tax collector’s office. If participating in an online tax certificate sale "auction", you may be able to complete the registration online. To complete the registration form, you will list basic information, such as name, address, contact numbers and federal identification or social security number.
W-9 Form
The W-9 is the standard government form. You can download a copy from the Internal Revenue Service website at www.irs.gov.
It is important that you provide accurate information on all forms submitted. This is particularly true for the W-9 form. If you have the winning bid, the tax certificate will be issued in the name that appears on the W-9 form.
Note:Any request for a different name on a tax certificate after the time of tax certificate sale will be deemed a transfer in ownership of the tax certificate and will result in a transfer fee. In most counties the fee is nominal ranging from $2-$15. Its ironic to see personal certificate holders selling their certificates online for $300.00 with a $195.00 transfer fee when the face value of the certificate is $150.00, the actual chance to own the property is less than 1% for certificate holders and the actual cost of transfer is $10.00 The unaware and uninformed buyer in this case will lose about $200-$300 assuming they hold the certificate for 2 years at 18%.
Deposit
Most counties require a certified check prior to the sale. Some counties specify a minimum deposit amount. However, in most cases, the required deposit is 10% of the amount you intend to spend. The funds used as a deposit will be reimbursed.
What are the interest rate terms?
Interest rates are determined at the auction. Bidding opens at 18% and is bid downward in a reverse auction style. The tax certificate is sold to the person bidding the lowest annual interest rate. When the certificate is redeemed, the tax certificate holder will receive the amount bid at the sale.
The bids are based on simple annual interest, not compound
interest. A winning bid of 18% will earn 1.5% monthly until the certificate is redeemed.
Example:
Tax Certificate with 18% interest will earn 1.5% each month. If the certificate is redeemed after 10 months, you will earn 15%.
An interesting exception to this occurs when the bid is less than 5%. If the certificate is redeemed, a mandatory 5% annual interest rate will be due unless the certificate holder has pledged a bid of 0%, which will yield 0% interest.
Interest Calculation
At the time of redemption or sale of tax deed, the county will calculate interest accrued. The interest accrued is not compounded. The interest is calculated against the face amount of the certificate, which is equal to the amount of the unpaid real estate taxes.
Duration
Interest is paid for a maximum of seven years. If the certificate is redeemed within seven years, the interest will be calculated based the actual number of months in delinquency up to a maximum of 84 months (7 years).
Example:
Tax certificate is purchased with a bid of 18% annual interest during open bidding at the auction on June 1, 2007.
If the certificate is redeemed after 38 months, the certificate holder will receive a stunning 57% total interest (1.5% per month based on 18% simple annual interest).
What happens if the certificate is not redeemed?
If the certificate is not redeemed by the 2nd anniversary date, you may foreclose on the tax certificate. To do this, you can file an Application for Tax Deed. The property will be brought to sale at a public auction by the county, which is commonly referred to as a tax deed sale.
If the property is sold at the tax deed sale, the certificate will be redeemed and the certificate holder will be paid.
Tax Deed Application
The application for tax deed is a means by which a tax deed can be issued, by and through the tax deed sale. The Application for Tax Deed is available at the Clerk of Courts Office in most counties. The application will require basic information that can be found on the certificate. This includes parcel identification numbers, tax certificate numbers, name which appears on the certificates.
When to File
You may file anytime after the 2nd anniversary date of the certificate issuance, but before the 7th anniversary.
Example:
- Tax certificate is advertised for unpaid 2006 taxes being delinquent on April1, 2007.
- Tax certificate is purchased during open bidding at the auction on June 1, 2007.
- The 2nd anniversary date of the certificate will be April 1, 2009.
- If certificate has not been redeemed, application for tax deed may be made after April 1, 2009, but must be made before April 1, 2014.
Deadline for Tax Deed Application
The Statue of Limitations occurs on the tax certificate’s 7th anniversary date of issuance. If the certificate has not been redeemed and the certificate holder has not requested a tax deed, the certificate is deemed null and void.
If you hold the certificate for 7 years without submitting the tax deed application, you will lose the investment.
Requirements
A certificate holder who applies for a tax deed must redeem all other outstanding certificates and pay other fees as mandated by state law (i.e. cost of title search, advertisement and auction). This includes unredeemed certificates sold before or after your purchase. If your tax certificate is for the 1st year of unpaid taxes, you can expect to redeem certificates for 2 other years in order to have the property go to auction. These costs will be added to the opening bid of the tax deed sale and reimbursable to you.
Example:
- You bought a 1st year certificate in 2007 for 2006 taxes.
- You submit the tax deed application on April 1, 2009, which is the 2nd anniversary date of your 1st year certificate.
- You will be responsible for redeeming the 2nd year certificate for 2007 taxes, which was sold in 2008, if taxes were not paid.
It is likely that the tax deed sale will not occur before June 1st. This implies that there will be a 3rd year tax certificate that must be redeemed by you.
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