Lien In? Tax Lien Investing Considered

Lien In? Tax Lien Investing Considered

Several years ago, Bankrate.com featured a cautionary article on tax lien investing, which works as follows: property owners fall behind and fail to pay property taxes. Municipalities slap a lien on delinquent homeowners’ property, and those liens are then sold to investors who bid on the lien (which is a right to foreclose on a property when owner fails to pay (in this case) real estate taxes).  The main risks of tax lien investing identified in the article include:

  • Obscure disclosure rules: state laws vary, and in certain states the tax lien purchaser must notify the homeowner of your lien claim and right to foreclose. An additional disclosure is mandatory should a tax lien investor once they seek to foreclose.
  • Tax liens that disappear: often opportunities to bid on tax liens will disappear as delinquent homeowners catch up and repay taxes that are owed. An investor expecting dozens or hundreds of tax liens to bid on may find slim pickings on the day of the actual tax lien auction.
  • Bad location, bad location, bad location: certain properties are depressed such that resale value of the home makes tax lien investing unprofitable. Investors must know the market for properties in the immediate vicinity.
  • Expiration dates: certain tax liens expire. Some investors have been burned upon finding out their rights terminate with the passage of time.
  • Multiple claims: tax lien investors may have to fight it out for title to a property with other claimants holding valid (non tax) liens on a property.
  • Overpriced? Many veteran tax lien investors, as is the case with many asset classes these days, have found prices bid up to levels that do not justify either the return or the risk.

Please check out the original bankrate.com article, Tax Lien Investing Fraught with Risk.

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