Tax Sale Article in June 16, 2008 Des Moines Register

Crowds Expected at Polk Tax Sale
By JEFF ECKHOFF • jeckhoff@dmreg.com

County Treasurer Mary Maloney estimates that Polk taxpayers will owe more than $7 million in unpaid taxes on roughly 5,000 properties by the time the sale commences. That's roughly a 16 percent increase over last year, according to the latest figures. For the first time, the pool of interested investors will fill up all 810 chairs in a rented room Maloney uses to sell the tax liens.Plus, there will be a waiting list more than 165 names long to bid on the debts.
"With delinquencies up and interest rates down, it's kind of like I've got the vultures circling," Maloney said last week.Johnson County Treasurer Tom Kriz said delinquent taxes are up roughly 25 percent in his county compared with last year, although that number was expected to shrink drastically due to the traditional flurry of last-minute payments.Linn County Treasurer Michael Stevenson said he expects to take 78 percent more properties to this year's tax sale, where they will be bid on by 218 more people than last year. Bidders are "looking at the volume we have right now, and they're playing the game," Stevenson said.
Tax-sale buyers say they fill an essential public purpose by allowing governments across the nation to enter a new budget year with only a minimum amount of unpaid taxes. Money made from the sale of "tax certificates" is cash that otherwise would be missing from county, city and school budgets for months or years.For investors, this civic duty comes with sometimes highly lucrative returns - especially when a questionable economy swells the ranks of available debts to purchase.
"It's a sign of the times, and it's increasing everywhere we do business," said Lambros Zethalis, director of Mooring Tax Asset Group, a Virginia-based company that will have more than 80 people purchasing properties at today's sale in Polk County. "We don't root for a bad economy ... but there is a benefit to having someone with the wherewithal to help when the county's got a budget to meet."The process, slated to take place in every Iowa county this week, will last three days in Des Moines. It works like this:
By law, Iowa treasurers must go property by property beginning Monday and sell certificates in the amount of unpaid taxes on each piece of land. The process in Polk tends to resemble a large bingo tournament for third-graders. County employees call bidder number after bidder number and repeatedly shush the crowd of hired bidders to quell the chattering.Maintaining order is important, Maloney said, because noise makes it hard to hear and slows down the process even more.
Each tax certificate amounts to a lien on that property and entitles the certificate holder to seize title to the land after two years if the original owner hasn't paid him or her back. Property owners also will owe an additional 2 percent per month in interest.Iowa's interest rate used to be capped at 14 percent per year. But the law was changed in the early 1990s to allow annual returns of up to 24 percent - a rate buyers describe as one of the nation's best, although vast differences in sale procedures make it hard to directly compare Iowa with other states.
The higher interest rate, plus the relative safety of the investment - more than 90 percent of Iowa tax certificates eventually get paid off - has led to an explosion of out-of-state tax buyers. Polk's sale, which used to take place in a county conference room, now requires a convention center and a computerized lottery to determine which bidder gets first crack at each property.The lottery, controlled by a random number-generating computer program, also serves as a cap on how much each investor is allowed to purchase. With 810 bidders and 5,312 parcels, each participant can expect to have his or her bidder number called no more than six or seven times during the three days.
"It's not as lucrative as it used to be when I got into it," said Dr. Brian Kay, a 52-year-old Minnesota pathologist.Kay, a former Des Moines resident, went to his first tax sale with his father in Clarion at age 18. He now finances a handful of auction bidders each year organized by a Des Moines-area friend."I used to be able to put more money into it, actually, when there were only a dozen of us," Kay said. "We wouldn't bid against each other. We'd just kind of sit around and say, 'Do you want this one?' ... I think most of those guys are dead now."
Most big players in the tax sale operate on a significantly larger scale. Employees at one Des Moines temp agency, where bosses declined to comment, said their agency will have at least 400 workers hired out to various tax-certificate companies this week. On top of the surrogates' salaries, which county officials estimate at $10 per hour, each company who bids at the Des Moines sale must pay Polk County $150 per head to register its bidders. (Because there's less paperwork, the fee is $75 for individuals representing themselves.)
The sole three-day job for surrogate bidders: To sit at rows of tables and listen for their assigned numbers to be called, then yell either "Sold" or "Pass.""It's like the lottery," said Nancy Coon of Oak Helm Partners in Davenport. "You have to have a lot of numbers in to make it worth your time."You also have to do your homework and determine ahead of time whether each property is worth the risk of ownership. Bidders say the only real control they have in such a crowded sale is knowing when to refuse to purchase the certificate for a losing property. If tax certificates aren't redeemed, buyers won't get paid and could lose their entire investment.
"If you don't do your homework, you certainly can pick up an environmentally hazardous property where you're going to walk away from your investment," said James Nervig, a Des Moines attorney and long-time tax sale buyer. "But there's certainly a lot more positive in individual cases than there is negative."