Red Bank now conducts its tax lien auctions online, speeding payments and improving efficiency.
They say the only two things that are certain in life are death and taxes. But for local governments especially those going through tough economic times, taxes may not be all that certain. If enough residents don’t pay their taxes or their municipal bills, it can strangle a small government.
Municipalities do have some tried and true ways to recoup those fees, including the auction of tax liens, where investors can purchase county-held tax certificates representing unpaid taxes and fees. But setting up an auction of thousands of liens is time consuming and expensive for small governments. Plus, live auctions further delay the payment of delinquent taxes and fees.
Moving the process online can greatly reduce administrative costs, increases the pool of bidders, and can help local governments more quickly recoup taxes and fees.
In many cases, once an auction is announced, a delinquent home owner simply comes in and pays the outstanding bill, which is the best situation all around. But if the property has to go to auction, most municipalities rely more on elbow grease than technology to get the job done. That's what the New Jersey borough of Red Bank used to have to do.
"I would get up there during in-person auctions and act as the auctioneer," said Red Bank Tax and Utility Collector Constance Ludden. Even before that, all the customer service and signups were handed by the office staff." The staff was also responsible for listing and advertising every single property with an outstanding tax debt to ensure bidders would attend the auction.
To combat the overhead involved in the in-person auctions, Red Bank contracted with Realauction.com to move the entire process online.
Realauction.com is a seven-year-old company that is currently working in Florida, New Jersey, Maryland, Colorado and Arizona and the cities of Detroit and Chicago. In New Jersey, Red Bank was the first municipality to come onboard, but now many others are joining up.
Auctions as a service
Daphne Crum, project manager for Realauction.com, said that any sized agency can use the company’s services. No infrastructure and no technical expertise is needed. The company creates a customized website through which the county hosts its auctions and manages all auction processes, including data transfer from the county’s software system to its custom website and customer service.
"We really do everything--from setting up the website to running the bidding process," Crum said.
Realauction.com has developed software to meet the needs of specific counties. One program automates the creation of a notice of sale for foreclosed properties. Another calculates the amount due on each tax lien, tracks payments electronically and notifies the municipality when funds have settled. The system processes receipts, notifications and title orders on hundreds of tax liens simultaneously, the company said, accomplishing these tasks in a matter of hours rather than days.
Crum said that security is not a big problem because the documents are public records. However, bidders’ information like their Social Security numbers pass through a one-way gateway to the website during sign up and are kept in an encrypted vault that can't be accessed remotely.
"If someone makes a mistake with that information when they sign up, they can't even change it remotely," Crum said. "Instead they have to write to us and begin a process of fixing the mistake."
For physical security, the data for the auctions is currently housed at Terremark’s Tier 1 data center in Miami. Crum describes the building as a bunker, designed to withstand a Category 5 hurricane. Even so, Realauction.com is planning on moving its entire operation into the cloud, so there will no longer be a single point of failure.
Besides improving the auction process for government, the auction websites also save time and money for the bidders. They can use Google Earth to see sites from the air or Google Maps to get directions to the properties. There are also links to help potential bidders find other records or liens concerning a property without having to visit several government offices.
Because the entire auction process is now online too, Ludden doesn't have to act as an auctioneer anymore. Bidders using the new electronic system bid blindly. The highest bid still wins, but bidders don't know if agreeing to pay a higher premium is a move to out-bid a competitor, especially if nobody else is bidding on that item. For the most part, this leads to much larger premiums for local governments.
Ludden said that the 2013 sales in Red Bank netted $960,000 in premium payments. And the cost to local governments is minimal. All costs are included in the per certificate fee paid by the winning bidder and reimbursed by the taxpayer upon redemption or tax deed sale.
No rain checks necessary
There is another advantage to having the auction online too, and that became apparent during Hurricane Sandy, which smashed into New Jersey last year. Even with power failures, evacuations and other hardships, a scheduled auction went on as planned, including registration, research and bidding. Between delinquent home owners paying what they owed before the sale and bidders being able to participate in the auction, Red Bank was able to close out 100 percent of its tax liens for the year.
Red Bank has so far used the Realauction.com service to power two full auctions, the first municipality in New Jersey to do so. Although the borough is relatively small compared to some of the governments running online auctions in New Jersey, Ludden said it gets the same high level of service and success as the larger municipalities.
So it looks like paying taxes has become inevitable once again.
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