First National Holdings, a purchaser and servicer of delinquent property tax liens, developed a novel way to increase liquidity. The company pooled delinquent property tax liens, primarily in Cook County, into an asset-backed securitization.

The deal is worth $87.5 million, according to the pre-sale report from Kroll Bond Ratings. The owner trustee of the tax liens is Citibank (C). Listed sellers are FNA Elm, Rock Elm and White Elm.

When a homeowner falls behind on related taxes, the relevant municipality can put a lien on the sale of that property until the debt is satisfied.

Often, local governments auction these liens to investors.  Yet with the debt settled, as far as the government is concerned, the notes retain the statutory “super-priority” lien position that is superior in any other payment, including the first mortgage.  If the homeowner can't settle with the investor, after a time, the latter party can foreclose. Redemption periods run an average of two to three years.

While homeowners are given time to pay, the interest rates are onerous by design, with the theory being higher fees incentivize payment.

According to Kroll analyst Patrick McShane, in the FNH deal, these liens automatically earn 12% interest per year from the date of the subsequent tax payment.

"Once a tax certificate is redeemed, all collections are distributed through the transaction waterfall including the interest that has accrued under the property tax lien," he added.

Once purchased at auction, the tax liens are entered into the proprietary FNH app on staff iPads. The tax liens are then tracked to resolution. Kroll lists this diligence service as a clear positive in its presale.

jgaffney@housingwire.com