Investing in Tax Liens

I agree, tax lien investing can be a great source of income and occasionally in real estate. I advise investors in this field to not look at this as real estate investment but rather as a cash investment - like a bond. The reason behind this is that many, if not most, owners will pay off the lien before you have a chance to get the real estate. If an investor gets their hearts set on the beautiful $250k home that they got for $15K, they will set themselves up for a disappointment.

Make a list of all the county courthouses you're willing to visit. Get the address, phone number, and website. One resource you can use is the National Association of Counties (NACo) website's Find a County" map. NACo is the only national organization that represents county governments in the United States.

Call or go to each court house and ask the treasurer how foreclosures and tax defaults are handled. It varies per county. Some counties don't sell tax lien certificates; instead they sell tax deeds. Sometimes the process is very complex.

If the court house has a library, ask the treasurer what section the law is found in, and study the law books to get the details how tax liens are handled in that county. You may be able to find the section online.
Alternatively, hire a local lawyer who has handled tax lien matters to explain the process to you for a few hours.

Preregister for the tax lien sale of your choice. Sales are usually once a year. Usually you must attend in person. Some states are now holding their tax lien auctions online, such as Arizona.

Find out the available method of payment for the liens. Either you bid down the interest rate, bid up the amount, or have a round robin or lottery type of sale. Find out ahead of time what type of sale the county is holding.

Do your homework:

Look at the records of the property you're bidding for and drive by it to see just what it is; in some states you can sometimes end up with the property if the owner doesn't pay the taxes.
Consider the risks that could hurt your return on investment. There are many things that can make the real estate that backs your investment worthless or a liability. The home on the property could burn down, the current possessor could destroy it, there could be environmental contamination, it could be seized because of criminal activity on the property, etc. (There could be an IRS lien on the property, however, county tax liens supersede even IRS liens.) There's also the potential cost of foreclosing and evicting the holdover in possession; you might also face an initial fight in bankruptcy court.[1]

Attend the tax lien sale, and double check the accuracy of the county lists.

Be sure to find out the laws and timing of tax lien redemption.

Buying Tax Certificates Over-the-Counter: The best way to avoid the competitive bidding at the annual tax sale, which might destroy either the maximum potential yield or the extraordinary security that an investor might obtain when buying a tax certificate, is to buy such certificate over-the-counter. In states considered "pure certificate states" (with certain exceptions such as Missouri), those tax certificates not sold at the annual tax sale can be purchased over-the-counter. There are exceptions, but this is usually done at the county level. Investors buy them from the same official who conducted the annual tax sale, and exceptions also apply in certain states. tviren

There are typically three outcomes to be expected from the purchase of a tax lien certificate.

1) The owner will pay off the certificate, with interest, which you will collect. Realize that in most cases you are only eligible for interest over a 1 year time period.

2) The mortgage holder/lender on the property will pay off the tax lien as a part of recovering title to the property, and you will receive the certificate amount plus interest.

3) The certificate will not be paid off, which makes the asset (property) the security. Foreclosure may be necessary in order to obtain ownership rights to the property. This is the most rare version of outcome on tax lien certificates.

We recently had a successful out come on tax lien certificates. Had a 28 percent return on our payments. It did take about four years in this case but we came out with outcome number two. We had 4 leans that just a couple of weeks ago pay off this way.

Hi everyone thanks for sharing,sincerely, Jim

Glad to hear that you have had some pay off that took a while. The system does work, but sometimes requires a level of patience to wait things out. Tax Liens are great investments, and the risk is relatively minimal.

Thank you Coach Dallin. It feels great we will most likely reinvest in more liens.

I appreciate you Coach Roy, randy, and Dallin for sharing your knowledge. I just bookmarket this:)

God bless

When a landowner fails to pay the taxes on his or her property, then the city or county in which the property is located has the authority to place a lien on the property. A lien is a legal claim against the property for the unpaid amount that is owed; property that has a lien attached to it cannot be sold or refinanced until the taxes are paid and the lien is removed. Similar to how actual properties can be bought/sold at auctions, these property tax liens can be as well.

A tax lien is immediately placed in the first position (even above the mortgage) so your money is guaranteed as mentioned in comments above. In the rare event that you do foreclose on the property through the purchase of a tax lien, do the other liens on the property (mortgages, potential contractor liens, lawsuits, etc) pass with the property to the new owner?