Moody's Investors Service has assigned provisional ratings for the Class I-A-1 and Class II-A-1 Tax Lien Asset-Backed Passthrough Certificates, Series 2010-1, which is issued by Tax Liens Securitization Trust 2010-1.
According to the a Moody's presale report, this is the first tax lien securitization that was sponsored by Banc of America Securities. The offering consists of two segregated pools of tax liens: Group I Tax Liens and Group II Tax Liens.
The certificates in this deal are backed by first priority liens on primarily residential and commercial properties in certain counties of the State of Florida that have arisen out of delinquent property taxes, assessments and other municipal charges or what are called tax liens, according to Moody's.
These are generally senior to mortgage liens and judgment liens with the creation and sale of these assets governed by Florida statutes.
The rating agency said that Group I certificates will be backed by Group I Tax Liens only, and the Group II certificates will be backed by Group II Tax Liens only. The rating agency added that each group of certificates will have a separate waterfall and reserve accounts and there will be no cross default or cross over-collateralization between the two groups.
Moody's, however, said that the waterfalls for Group I Tax Liens will be the same as that for the Group II Tax Liens. The historical redemption curves, or the rate of cumulative repayments, offered by the issuer have been used to size the Class I-A-1 certificates and Class II-A-1 certificates as if they were money market tranches using Moody's methodology.
Explanation of Collateral
Moody's said that in Florida property taxes are due and payable by Nov. 1 of each year. By April 1 the following year, property taxes will be considered delinquent if unpaid. Meanwhile, tax lien sale notice will be sent to property owner by the county tax collector.
From May to June, tax liens are usually sold through public auctions to highest bidder/minimum bid rate bidder. Many Florida counties hold internet auctions, Moody's said.
The state law imposes a maximum statutory bid rate of 18% simple interest rate per annum with 0.25% allowable bid rate increments. Aside from a bid rate of 0%, the tax certificate purchaser will get the higher of a 5% penalty on the tax lien amount or the interest calculated based on the bid rate per annum given to the buyer and the tax certificate amount.
The life of a tax certificate is seven years from the date of issuance. If there is a bankruptcy filing, the life of a tax certificate can be extended. But if no action is taken by the tax certificate holder over the seven-year period, and the taxes are still unpaid, the tax certificate is cancelled as a result of the statute of limitation, which will result in the loss of the investment, Moody's said.