The Maricopa County Tax Lien Auction on February 11, 2014 offered tax lien certificates of purchase primarily for the 2012 tax year. This was the most disappointing year ever for investors, especially the smaller ones.
As usual, Grant Street did a great job. Their data point to a continuation of the trends mentioned in our post last year, but things are much worse now. While many of the players are the same, some have gotten much more aggressive.
The top 10 bidders by face amount this year purchased roughly 75% of the certificates that were not struck to the state. The top bidder by volume this year, a fund associated with a biotech hedge fund manager out of San Diego, purchased nearly 31% of the liens not struck to the county, buying over 2500 tax lien certificates at a weighted average rate of approximately 2.66%. The extent of the fall in the weighted average rate of winning bids for investors has been dramatic over the past five years:
Contributing to the fall in yields has been a sharp drop in supply: tax lien face amounts available to investors in Maricopa County fell from $86mm in 2012, to $47mm in 2013, to $35mm this year. Of this year’s $35mm, roughly $16mm was struck to the state, leaving only $19mm in investors’ hands.
Considering that the average Maricopa tax lien certificate of purchase sold this year had a face value of about $1,619, the $10 TIF alone puts a real dent in returns like this year’s. At the auction overall weighted average rate of return of 3.82%, a $1,619 CP would need to be outstanding for two months just to cover the TIF. Considering that Arizona tax liens do not pay interest for the month in which they are auctioned, that means on average investors would not be in the black until May. Although risk-adjusted returns for (properly researched) tax liens are still attractive, the absolute returns offer scant compensation for the research and administration required, in our opinion.