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."