REAL ESTATE AND TAX DEEDS
Taurus purchases tax deeds at auction. When a property owner fails to pay a tax bill, the local municipality may seek to collect that lost revenue by auctioning the unpaid bill as a tax deed. The tax deed certificate represents a secured position in the underlying real property, senior to all mortgages and other liens, including an IRS lien.
The local municipality sells the deed in order to capture the unpaid revenue. In order to attract purchasers, the law provides potentially attractive returns to the purchasers.
Property owners and junior creditors have up to 12 months to “redeem” or pay off the deed, plus a 20-30% penalty. If the deed is not paid in that time, purchasers like Taurus may foreclose and file a quiet title action in order to secure title to the property. In the interim, in some circumstances, the purchaser may make improvements to and subsequently rent out the property to generate revenue.
Risk Mitigation:
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Risk— The purchaser can recoup its investment in one of three ways: earning income on the rental of the property, earning back its original investment plus penalty if the property owner or junior lienholder redeems the deed, or selling the property at market value after having taken formal ownership following the perfection of clear title.
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Returns—The statutory penalty to be paid to investors upon redemption is 20%-30%. Since many redemptions happen with the first year, the annualized return to the investor upon redemption could be significantly higher. Otherwise the property can be rented at attractive cap rates by the deed owner.
