Monday, December 12, 2011

As Certain as Death and Tax Portfolio Sales

From the P-G:

The county is in line to collect $6 million by the end of this year in return for a portfolio of tax liens worth $7.2 million. The liens are claims against almost 5,000 properties for unpaid real estate taxes for the years 2008 through 2011...

The $7.2 million in tax liens cover 4,977 properties throughout the county.

Those parcels are among more than 18,000 properties across the county on which $14.6 million is owed in back taxes and penalties for the three years. The county had sought bids for the sale of all those liens, but the offer to buy them came in at just $7.5 million. That deal would have gained the county about 52 cents for each dollar owed.

The county has used tax-lien sales to raise revenue in the past. A 2007 tax-receivable sale yielded $13.4 million from the sale of liens valued at $18 million. That represented an upfront payment of 75 cents for each dollar owed the county.

Ms Griser estimated that, based on past experience, it will take the buyer of the liens about four years to get back the $6 million initial investment.
If I'm reading this right and doing the math correctly, we're looking at round about $1.5 billion worth of property that's tax delinquent (assuming that any multiple liens sort of even out). Even if it was a third of the value, that's still a lot of property to be tied up with a third party collections gency.

So tax portfolio sales seems to be one of those great get rich quick schemes municipal entities try to use to balance their books riiiiight before a crisis. Of course if we learned anything from the City's Capital Assests debacle*, we remember that for a short term influx of cash, the City's hands were tied when it tried to assemble large swaths of property for redevelopment. Capital Assets literally stuffed all of these bad liens into a black hole (for you clever dog Latin fans) and held up development progress for years. As a colleague of mine once said, "It was the dumbest thing the City could have done."

Flash forward to today: even though the County taxes are a fairly minor sum when compared to other taxing bodies, in an economic downturn it seems odd that the portfolio purchaser would seem to value it so highly. Without knowing what types of property specifically were in that pool of liens, they paid $.86 on the dollar... which I would assume means that they expect to collect at least 87% of the liens. I don't know if I can say for sure if this is unreasonable or not given the national economic trends, but I get the feeling that they may be waiting a loooong time for their purchase to pay off. In the meanwhile, depending on how well their collections go, this new delinquent tax lien holder could wait it out, slowing community redevelopment until others with deep pockets come and pay them their full asking price.

If not, they can always package it as a security and create a "safe" vehicle for investors. You know... again.

*We haven't.**
**That post is almost five years to the day, by the way.

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