Tampa investor profits when people don't pay their property taxes

Seven years ago, Brian Davison was down and out, his lending company a victim of the housing bust.

"I had to reinvent myself,'' he says.

Today, the 43-year-old Davison is CEO of Equialt, a group of investment funds that own more than 170 houses, townhomes and condos throughout Tampa Bay. Collectively worth tens of millions of dollars, most of them were snapped up for far less than their market value.

Davison is profiting from tax deeds — an arcane investment made possible by those who don't pay their property taxes. If you are at least two years in arrears on your taxes, your home could be auctioned off to a buyer like Davison, who has landed juicy deals like these:

• A 1,900 square-foot pool home in Safety Harbor on an oak-lined street just steps from a waterfront park. Though the house was recently appraised at $380,000, Equialt got it for $148,000.

• A 2,182 square foot home in Seffner conservatively worth $155,000 went to Equialt for $102,757.

• A 1,600 square foot townhome in Temple Terrace valued at $70,263 but bought by Equialt for $56,100.

"We do have a couple of very nice places, but typically it's the more modest properties that people lose to a tax deed,'' Davison says. "These are snowbird homes or old retirement homes and a lot of times they've been tagged by the city for lack of maintenance.''

After making repairs and improvements, Equialt can rent the homes as the economy improves and property values rise.

"We are long-term players in the market,'' Davison says, adding that with a few exceptions all purchases "are buy and hold. We wish to be part of the community.''

A military kid who spent many of his younger years out West, Davison opened a lending company with offices in Las Vegas and Arizona during the boom of the early 2000s. He wanted to expand to the East Coast, and figured Tampa Bay would be a good place because the housing market was strong and the area hadn't had a direct hit from a hurricane in years.

Davison, his wife and baby moved to Tampa in 2005 but his business soon faltered as housing prices began to tumble. Back they went to Vegas, "to circle the wagons and try to save the company,'' as Davison puts it. In 2008 he had to declare bankruptcy when he was unable to renegotiate leases on expensive office space.

"Those were dark days,'' he says. But they led to another opportunity.

At the time, Nevada ranked first nationally in foreclosures, with one in every 14 borrowers in default on their mortgages.

"During that part of the crash I went down to the Clark County office in Las Vegas and began buying houses at auction from the banks,'' says Davison, who worked with partners. "From 2008 to 2011 we bought and flipped 400 homes.''

By 2011, he was doing well enough to move the family back to Tampa and pursue more unusual investment options — tax certificates and tax deeds.

When a property owner fails to pay the taxes by April 1, the county can issue a tax certificate to get its money. Investors bid for the certificates and pay the delinquent bills. The property owner has two years to pony up the taxes plus interest, and the county forwards the payment to the investor.

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The interest is typically low — less than 1 percent — and unless an investor buys certificates in bulk it's hard to make much money from them.

"I first started buying the tax certificates,'' Davison says, "but that's a really boring business. I wanted to buy houses.''

That's when he decided to go after tax deeds.

Here's how it works:

After two years, the holder of a tax certificate can file a so-called "tax deed application'' with the county tax collector. That triggers a foreclosure of the property. Unless the owner or lien holder brings the taxes current, the clerk of court proceeds with a tax deed auction open to anyone who wants to bid.

The properties are sold "as is,'' and bidders must do their own research as to the condition. Although the sale typically wipes out mortgages, there may be outstanding judgments, current year's taxes and other liens that survive the sale and become the responsibility of the winning bidder.

Another hitch: The winning bidder does not get title insurance or automatically acquire a marketable title — legal action often is needed to "quiet'' the title.

"It's a risky enough (business) if you don't know what you're doing,'' Davison says.

And there can be surprises, like the Lakeland house Equialt bought last month.

"The rehab guys ran across an urn,'' Davison recalls, "and the neighbor said a baby had died there and that was the baby's urn. When they heard that, all the guys were out the door.''

Counties conduct tax deed sales on a regular basis. In Hillsborough, they are held every week at the courthouse. In Pinellas, they are usually once a month and online.

Last year, Hillsborough had nearly 450 tax deed auctions, with Equialt being the single biggest player with 36. In Pinellas, with 192 sales, Equialt was among the top two or three buyers.

Why would anyone let a home go for failure to pay a few hundred or a few thousand dollars in taxes?

In many cases, the homes are mortgage-free properties whose owners died or walked away. Such was the case with the pool home that Equialt acquired last year in Safety Harbor.

After Steve Magill and his wife separated several years ago, he moved to California and she returned to her native Japan. No one paid taxes on the empty house, which her wealthy father had bought for $214,000 cash in 2003. "I would have kept it, paid the taxes and rented it out but I didn't think it was morally right because her father paid for the house and I wasn't there anymore,'' Magill said. "I guess her father, having as much money as he does, said to hell with it."

Equialt got the house for just under $150,000 and has invested another $100,000 or so, including adding a fourth bedroom. Unlike the case with most properties, it plans to flip this one for around $380,000 at a potential profit of $130,000.

Equialt also gets a substantial number of homes that banks or homeowners associations foreclosed, but for whatever reason failed to pay the property taxes.

All tax deed purchases are made in cash, with money coming from 283 private investors mostly on the West Coast. ("That's where my contacts still are,'' Davison says. )

The funds and their eight employees have headquarters in the Urban Centre on Kennedy Boulevard but will be moving to a 66-year-old South Tampa house acquired, not surprisingly, through a tax deed sale.

Equialt recently donated three small houses to Potter's House Community Development, a nonprofit that will house veterans in them. Davis himself has moved his family into new, $1 million contemporary home on Davis Islands.

It's a long way from the days when he ran out of luck in Las Vegas and was making $250 a week selling timeshares on the Strip.

Contact Susan Taylor Martin at smartin@tampabay.com or (727) 893-8642. Follow @susanskate.