Tax Lien Statistics, Portfolios & Investment Market

With an economy that is receding, and the incomes of citizens shrinking into oblivion, tax authorities offer unimaginable amounts of delinquent taxes to the free market in tax lien sales. This much needed funding of public expenditure is able to recouped and is found to be a practice that will only continue to increase in the future.

The Cause of it All
The sad truth is that tax delinquency is a largely the result of an economic downturn in the US economy. Recently, statistics reveal that approximately 1.5 million people annually have lost their means of deriving an income, 20% of individuals work more than one job in order to make ends meet, and to compound the problem, the population is aging with 10,000 people a day embarking on their 50th year with the anxiety of financial insecurity.

There happens to be in excess of 3,200 different jurisdictions across the United States, with over 4,100 local recording offices which tax liens need to be filed with,and over 15,000 separate units of government which assess property for the application of tax. This inherently demands that the investor of tax liens is well informed in regard to all aspects of the lien contemplated and the jurisdictional idiosyncrasies applicable.

Tax Liens Continue to Grow
Local governments have far more ability than their State and Federal counterparts to attend to the needs of, and preserve the local community. Property taxes comprised only 21% of Local government revenue in 1978, and as the tax lien market has progressed from its infancy, 90%  of municipal revenue is derived from property taxes.Not surprisingly, the fiscal impact of a 3% or 10% delinquency rate can cause serious damage to the financial health of a local community.

Still the overall growth in property tax revenues, arguably assisted by the tax lien frenzy has been found to be between 6.2% and 10.5% annually over the past 50 years,with the first large scale securitization of tax liens being competed in 1993, when Jersey City, New Jersey sold $44 million in delinquent taxes to an investor. Other cities have followed this lead, all with astounding figures in tow with Puerto Rico securitizing $400 million worth of tax liens to an investor with extensive tax liens portfolios in 1998.

The securitization of tax liens has become a flavorsome treat for the corporate investor with an enormous appetite, and these enormous parcels of tax liens represent between $5 and $7 billion of the $60 billion of tax delinquency throughout the United States.

This shows that there yet remains plenty of opportunity for the average investor to take advantage of tax lien instruments, with the counties offering thousands of liens for sale each year.

The predetermined interest rate upon which the lien investment relies, are available from 6% in Alabama, to a monumental 24% in New Jersey.

Of course, all tax liens have attached to them a statutory period of redemption during which the owner can satisfy the entire debt and redeem the property. Between 60% and 95% of properties are redeemed in this manner, but the interest rates received by the lien holder are still competitive with alternative secured investments to say the very least.

 

References:

Fisher, Glenn W., The Worst Tax? A History of the Property Tax in America 1996

Aaron, Henry What to do Circuit Breaker Laws Accomplish in Property Tax Reform?

Netzer, Dick Urban Finance Under Seige 1978

Cornwell, Ted “Tax Lien Servicing Joint Venture Receives Approval From S&P”-Mortgage News September 7th, 1998

“Breen Welcomes the Big Boys into Tax Lien Market” – Asset Sales Rep November 25, 1996

Carey, Chantal Howell & Carey, Bill Make Money in Real Estate Tax Liens John Wiley & Sons Publisher