Update on Tax Deed Sale Overbids

With the implosion of Florida real estate sales, the tax deed business has slowed as well. This is not to say that properties aren't still being auctioned off, they are and in decent numbers, just that the amount being bid for properties at auction has dropped dramatically. Another interesting aspect is that a higher percentage of properties are being redeemed before tax sale, an indication that buyers are locating property owners and making offers prior to the auction.

Personally, I think the much of Florida is already in a recession. One point worth noting is the median interest rates being had at the annual county tax lien certificate sales. To give an example, in Citrus County the following numbers as they pertained to County Tax Lien Certificate sales were obtained from the Clerk of Court:

Year ---- Median Interest Rate Bid

2003 ---- 14.31%

2004 ---- 11.52%

2005 ---- 4.75%

2006 ----- 1.81%

2007 ----- 1.39%

Obviously, investors have been willing to accept lower and lower returns during the last several years of auctions. The question that arises is if we stay in a prolonged period of slow sales, combined with declining property values, how long will investors be content to sit on 1.5% returns with an asset that is declining in value? Will the upcoming sale in June 2008 see an increase in median interest rates bidders are willing to accept? I suggest we will see increasing rates at sales and we will also begin to see the number of delinquent properties start to rise. Once property owners capitulate and allow sale prices to come back in line with historical norms, the opportunity to buy tax distressed properties will begin to increase. I'd say we're at least 2-3 years away from getting back to 'normal.'