GFOA Advisories identify specific policies and procedures necessary to minimize a governments exposure to potential loss in connection with its financial management activities. It is not to be interpreted as GFOA sanctioning the underlying activity that gives rise to the exposure.
Governments sell or securitize property tax liens to eliminate backlogs of accumulated delinquent tax receivables and convert those receivables into cash. Tax liens, which are attached to properties for nonpayment of property taxes or other assessments, may be bundled and sold directly to investors through a bulksale process. They also may be sold to a trust, where the payment stream is securitized. Bonds backed by the delinquent taxes are then sold to investors and the proceeds of the issue are paid to the government that sold the tax liens.
GFOA recommends that governments contemplating the sale or securitization of property tax liens undertake a careful analysis of benefits and risks both in the current fiscal year and over the long-term. When evaluating the sale or securitization of tax liens, governments should:
7. Review statutory cure periods established to permit owners to pay delinquent revenues to ensure that an appropriate balance is struck between government policy objectives and acceptability to investors.
- knowledge of state and local law;
- due diligence capabilities in the lien selection process;
- adequacy of the servicing system, including recording, auditing, and financial reporting procedures; and
- historical performance in servicing liens, including procedures for workouts and foreclosures.
10. Recognize the community relations impact of establishing a private collection mechanism. Governments should take steps to maintain good relations among all affected parties, such as designating an ombudsman or instituting a formal complaint process through which problems that may arise are addressed.
- Tax Lien Securitization: Putting Non-Performing Assets to Work, Government Finance Review, GFOA, June 1996.
- Municipalities Turn to Property Tax Lien Sales, Standard & Poors CreditWeek Municipal, March 25, 1996.