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04/25/13 It's The Law: Tax Certificates Are Not Deeds

It's The Law

Tax Sale Certificates Are Not Deeds

(4/25/13)

Question:

I understand that you do not lose title to your property if you do not pay taxes. Instead, some type of tax certificate is issued. Can you explain?

Answer:

Your question is timely. We are coming up on tax certificate sale season. Collier County's Tax Collector has announced that the tax certificate sale in Collier County will be May 30 through June 5. I will explain the process.

Real estate property taxes become due November 1 and are delinquent April 1 of the following year. Payment of taxes before March benefits from a 1% per month discount. After the taxes become delinquent, a 3% penalty is added to the tax bill.

If the taxes are not paid, Florida Statutes mandate that the Tax Collector auction a tax certificate to pay the taxes by later of June 1 or the sixtieth day after the date of delinquency. The sale is conducted as a public auction and the proceeds from the sale pay the delinquent taxes and costs of sale. If there are no bidders for a tax certificate, it goes to the County bearing interest at 18% per annum.

Buyer of the tax certificate pays the delinquent taxes, interest which has accrued since date of delinquency to date of the sale, calculated monthly at a rate of 18% per year, costs of sale and any other charges, including advertising charges, associated with the sale. Since the Tax Collector places bulk advertising in the newspaper, each certificate is assigned only a portion of the overall advertising expenses. The only variable is interest rate, which is established by the auction.

The Tax Collector starts the bidding at 18% per year and will accept bids in even increments or fractional increments of one-quarter percentage point. The lowest interest rate bidder buys the certificate.

A tax sale certificate does not convey any property rights. The certificates are only an interest bearing lien against the property.

The Tax Collector requires a reasonable deposit within 24 hours of closing of the sale on the day the bid was made and payment in full within 48 hours after mailing notice to the purchaser of the remaining balance due. If timely payment is not made, any deposit is forfeited and the Tax Collector may sell the certificate to any buyer without further advertising.

In addition to all other expenses, the Tax Collector is entitled to a 5% commission of the amount of delinquent taxes and interest.

Because the tax certificate is merely a vehicle to get the taxes paid, the property owner or his representative can redeem the certificate and have it cancelled by paying the face amount of the certificate and accrued interest at the rate stated in the certificate to the date of redemption. The Tax Collector then pays the certificate holder. If the interest earned on the tax certificate is less than 5%, a minimum charge of 5% is charged.

If a tax certificate holder wants to get paid, he can demand the underlying property be sold by the Clerk of Courts at a tax deed auction. However, the holder must wait 2 years after April 1 of the year of issuance of the tax certificate to apply for a tax deed. During that 2 year period, the tax certificate holder is prohibited by statute from contacting the owner of the property. If the certificate holder does not apply for tax deed within 7 years of issuance of the certificate, the certificate expires and becomes worthless by virtue of a specific statute of limitations.

Financially strapped property owners who understand the system often opt to not pay property taxes and pay other bills instead, especially when interest rates are low. Tax certificates sold over the last few years generally carry a low rate of interest, when compared with credit card and other high interest rate debt. And, because a certificate holder must wait 2 years before even requesting a tax deed sale be scheduled, the property owner has some time within which to reorganize financially. At the same time, a tax certificate can be a good investment if it bears more interest than competing financial options.

The tax certificate can be an attractive investment. But, unlike the safety of treasury bills and certificates of deposit, the value of a tax certificate is affected by the underlying land, possible defects in title to the land, and the potential for other legal problems. For those reasons, tax certificates should not be the investment of choice for the inexperienced. Even the experienced can be well served through good legal advice in the tax certificate arena.

By: William G. Morris, Esquire

William G. Morris is an attorney with offices at 247 North Collier Boulevard on Marco Island, Florida. His practice covers a broad range of subjects, including civil litigation, real estate, business and corporate law, estate planning and probate, domestic relations and contracts. He writes this column periodically with respect to legal matters that frequently affect non-lawyers. The information contained in this column is not intended as legal advice and, of necessity, is generalized. For questions about specific circumstances, the reader should consult a qualified attorney.

Questions for this column can be sent to: William G. Morris, e-mail: wgmorrislaw@embarqmail.com or by fax, (239) 642-0722 or

The Marco Island Eagle

Other articles of interest can be viewed at our website, www.wgmorris.com.

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