The Maricopa County delinquent tax-lien sale was good news for the County Treasury, but bad news for investors – By Mike Fimea, Arizona Business Gazette, February 19, 2004, volume 124
The county auctioned about 14,000 liens at the Feb. 9-12 sale in downtown Phoenix. Although the number of liens sold was virtually unchanged from 2003, the county collected nearly $2 million more this year. Total sales amounted to $17.5 million, compared with $15.78 million in 2003.
But investors hoping for double-digit interest payoffs ran into the most aggressive bidding in years. A large number of liens sold for between 6 and 7 percent interest, well below the 10 percent average at lien sales dating to 1997.
“It was pretty amazing. Some people were bidding only 5 percent, which is very, very rare,” said David Schweikert, chief deputy treasurer for the county.
“With tax liens, investors understand their money is locked in and they can’t cash out at their whim. But I think they’ve also discovered there are few alternative places to put their money and earn a big interest rate.”
Ted Gremmel, a 19-year veteran of county lien sales, had a more blunt assessment.
“It was terrible,” he said. “Every year the interest rates are low on Monday (the first day of the sale) but it gets better on Tuesday and Wednesday. This year it stayed bad.”
Gremmel’s plan was to spend $90,000, including $20,000 of his own money, to buy liens for himself and six other investors. He spent nearly $3,000 in the two weeks before the sale, hiring three people to conduct intense research on various properties.
“I do my homework,” Gremmel said during a break in the Tuesday session. “From 20,000 liens, I narrow it down to 500 great bids. By the time I’m done, I should have (liens on) close to 400 properties.”
But by Thursday afternoon, Gremmel had bought only about 100 liens and still had $50,000 of his investors’ money left. He managed to spend most of his personal $20,000 stake; however, half of his own liens were bought at zero percent interest. Gremmel is counting on at least a few of his liened properties to go into foreclosure, which would allow him to acquire the parcels outright.
“Half of getting foreclosed properties is good research, the other half is luck,” he said. “Even if I only get one, it will be hugely worth it.”
The low interest rates also caught out-of-state investors by surprise. Gordon Tudor and Bryan Burke of San Diego flew into town on the Sunday before the auction and spent two days looking at properties.
“We have $50,000 to invest, and we’re looking for liens (costing) $1,000 and above,” Tudor said before the Tuesday morning session, clutching a page of lined notebook paper filled with parcel numbers and addresses.
Two hours later, the Tudor-Burke strategy was in tatters. Although the duo bought several smaller liens ($80 to $130), they were shut out of higher-dollar liens by institutional investors.
“They were willing to go down to 5 or 6 percent, and we didn’t want to bid lower than 10 percent,” Tudor said by telephone from San Diego two days later. “To get the interest rate we wanted, we had to buy the $100 liens instead of the $500 and $1,000 ones.”
Schweikert said the county sold a higher percentage of liens than in past years. Just over 20,200 liens were available at the auction.
“People were shaking their heads at how competitive the bidding was,” he said. “I think one factor is the quality of research done by individuals. There’s more access to information, which makes it much more egalitarian.”
Gremmel blamed the low rates on cheap money available to institutional investors.
“I can’t compete with financial institutions who have unlimited money available at low interest rates,” he said. “If they can borrow at 1 percent interest, they can make money bidding on liens at 6 percent.”
Like Gremmel, Tudor and Burke spent only part of the money they intended. The duo spent about $10,000 on 40 liens during Tuesday’s session. Their purchases included liens on vacant land and new townhouses, although none was for properties they had viewed during their research.
“I definitely wouldn’t recommend doing it the way we did,” Tudor said, noting that he and Burke spent about $1,200 on plane fare, meals and hotels during their three-day stay.
“But this was our first time and we were willing to throw $10,000 at it. Bryan and I enjoyed ourselves; next year I wouldn’t mind bringing more money and bidding on bigger liens.