What are the Common Risks in Investing in Tax Liens and Tax Deeds?

As a great American statesman and inventor once said, “ nothing in this world is certain but death and taxes”. Of course, everything will come to pass, and so does any business or career that we may engage in. Even what seems to look like a surefire investment can sometimes, turn topsy-turvy.

In the real estate industry, investing in Tax Liens is buying the delinquent or unpaid taxes on a property. Once you win in an auction the owner is given a certain period to redeem the property by paying the tax lien you bought plus interest and penalties which range from 8% to 36% depending on the statute of the state and the length of time that the owner has been able to pay you. If the owner does not pay, you have the right to foreclose the property.

Since we have had discussed almost every aspect of tax lien investment in our past articles, ( re: Which is better investment, tax lien cert or tax deed sale/Buying tax deed in California/What happen if my home goes to a tax lien sale/Are there risks in investing in tax liens/What if a tax lien is attached to a divorce settlement/ Tax Lien investing: Handsome RO) TERRA feels that it is also equally necessary to inform our prospective investors of the danger or risk they may encounter in tax lien investing. These are the most common ones:

• The list of properties for Auction is not updated: It is necessary to be extra careful in buying lien properties as sometime half of the properties on the list may have been gone since the owner had paid it already.
• The real estate may be of very little value or almost worthless: Maybe the owner had deliberately stopped paying the taxes for that piece of property simply because he/she feels that it’s not worth it anymore. Or, maybe it has some right of way problem. Maybe it goes under water even with a slight drizzle. Maybe it is located far from the civilized world, so to say. No wonder they just don’t want any part of it anymore. So now, the burden of paying taxes for that worthless property lies in your hands.
• Unkempt or unmaintained property : Some lien property have been left to deteriorate in such a sorry condition because the owner just don’t have the money to do some repair or loses interest in maintaining its healthy looks and condition for other reasons. Because of that, the property incurs unpaid taxes making things even worst. And what if, without you knowing, some terrible accident happened to the property that warranted the city government to condemn it. So, later on you’ll just find a piece of abandoned vacant lot. Bear in mind that it’s always important to do some research and investigation before buying either a tax lien certificate or a tax deed.
• Laws and Politics Change: If the owner had declared bankruptcy on the property you bought, that could impair the smooth payment and can considerably reduce the amount of interest you expect from the liens. The laws vary in every state. You go to the proper courts knowing very well that you’re doing the right thing, but the judge says otherwise. There’s nothing you can do when politics rear its ugly head. But always do the right and lawful thing even under the most trying times.
• The Taxing Authority /Government Commits Mistake: It seems unbelievable but it happens. In some rare cases, the state or the taxing authority forgets to inform the owner about the Tax Lien Sale. The owner goes to court and you just see yourself entangled into lengthy court litigation. Assuming the Government declared an error during the sale, you get a measly 0.5%, which is way below the expected 18% or more interest of your investment.

In this regard, it is TAX LIEN SEMINARS’S commitment to give well-meaning advise to potential buyers and investors of Tax Lien Properties. Exercise due diligence with extensive research before you buy tax lien properties. You can always request for the necessary documents from government records on the property you wish to acquire. Also, inspection of the property is a must. At the end of the day we believe TAX LIENS & TAX DEEDS are sound real estate investments.