Florida Tax Certificate Process
Please note: While the following information is wholly accurate, it is not meant to be a comprehensive explanation of Chapter 197 of the Florida Statutes, which is the law governing tax certificates and their auction or sale.
What are tax certificates?
In Florida, taxes become due November 1, and become delinquent if not paid by April 1 of the following year. The Constitutional Tax Collector in every County then prepares a list of the properties with delinquent taxes and sends out notices to all property owners with unpaid property taxes stating that a tax certificate will be auctioned on or before June 1 if the taxes are not paid.
The tax certificate’s face amount consists of the sum of the following: delinquent real estate tax (unpaid amount), interest on the delinquent amount (1.5% for each of the months of April and May - and June if the auction is held in June), Constitutional Tax Collector’s commission (5% on the delinquent amount), and the newspaper’s advertising charge (& sale costs or other costs).
Tax certificates are a first lien against property which means there are very few other claims against a property which would be paid before the tax certificate lien. It even supersedes some IRS liens.
The property taxes become delinquent on April 1. On or before June 1 the Constitutional Tax Collector must start the tax certificate auction (Note: tax certificates and the auction of them is governed by Chapter 197 of the Florida Statutes. All requirements mentioned in this document come from Chapter 197 without the legalese).
To make a simplified analogy, think of the purchase of a tax certificate as a loan to the property owner. In return, the investor receives interest on the money loaned.
In Florida, the tax certificate conveys no property rights. It is simply a “loan” carrying an interest rate.
The certificates are advertised once a week for three consecutive weeks before the auction.
The interest on a certificate ranges from 0 to 18%. Bids are entered with the certificate going to the bidder willing to take the lowest interest rate. Simple interest accrues on a monthly basis. If the certificate carries an interest rate of 12%, then interest will accrue at 1% every month until the certificate is redeemed. Once a certificate is issued, providing the redemption of the certificate is after May 31, the least an investor will receive in interest is 5% (Florida Statutes) except for a bid of 0%. A certificate won with a 0% bid earns no interest. The investor is guaranteed 5% over the life of the certificate IF THE CERTIFICATE IS REDEEMED. Certificates are good for 7 years from the date of issuance. At the end of 7 years, the certificate is retired (no longer exists). If the certificate is not sold to an individual, a certificate will be issued to the County bearing an interest rate of 18%, and may be purchased by contacting the Constitutional Tax Collector’s office. Most counties today do not issue actual certificates anymore. The certificate is kept as an electronic file at the Constitutional Tax Collector’s office.
Now you own a tax certificate, so what can happen next?
A certificate holder is not allowed to contact the owner of the property carrying the delinquent taxes for two years. Such contact can result in costly legal action.
When the owner pays the delinquent taxes, the interest is calculated and a check is sent out with a notice to the certificate holder.
The certificate can be sold and/or transferred to another entity. Per F.S. 197.462(3), the tax collector shall receive $2.25 as a service charge for each transfer.
Let’s say the owner doesn’t pay the delinquent taxes. Two years from the date of the delinquency (April 1) but no longer than 7 years, the tax certificate holder can request a tax deed application. This process starts the foreclosure of the property. To foreclose the property, the certificate holder making application for a tax deed has to pay the Constitutional Tax Collector an application fee, a title search fee and all amounts required for redemption or purchase of all other outstanding tax certificates, interest, omitted taxes, and delinquent taxes as well as applicable Clerk of Circuit Court fees, relating to the real estate. In most cases the property is scheduled to go to sale at public auction by the Clerk of Circuit Court within 3 to 4 months from the date of the tax deed application. Holding the certificate creates no advantage towards owning the property. The highest bidder becomes the owner of the property. If the property is a non homesteaded parcel, the opening bid is the amount of the taxes, accrued interest, plus costs and fees involved in a tax deed application. If it is a homesteaded property, the opening bid is half the assessed value plus the tax certificate face value and costs. IF THE PROPERTY DOES NOT SELL, THE TAX CERTIFICATE HOLDER IS REQUIRED TO TAKE DEED TO THE PROPERTY. IF THE PROPERTY IS NOT SALEABLE, THE CERTIFICATE HOLDER LOSES THE ENTIRE TAX CERTIFICATE INVESTMENT. BUYER BEWARE. Know what you are purchasing.
County Held Certificates
Certificates that do not sell at auction become the property of the County and are offered for public purchase at a time and place announced after the close of the auction. The unsold certificates carry an interest rate per Florida Statute beginning the date the certificate was struck to the County. County-held certificates redeemed in the month they are purchased, earn no interest for the certificate holder.
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