Tax Lien Investing: Problems and Pitfalls

In my last post What is a Tax Lien Sale? I discussed what they were and how to earn money investing in tax liens.  Today we are going to review some of the issues real estate investors should be aware of if they are considering this type of investment.

1. Tax liens are illiquid.  They must be held until they are repaid or the lien holder takes the action to foreclose.  While tax liens can be transferred to another party, they cannot be cashed in.
    
2. If the real estate investor does end up acquiring the deed to the property, they also acquire any problems associated with the property such as environmental issues, survey issues, etc.
    
3. Deeds, if obtained, are generally taken as quit-claim deeds and are not forms of insurable title.  The investor will need to spend extra money to obtain marketable title to the property.
    
4. If the property owner declares bankruptcy, the bankruptcy judge may reduce the penalty and/or interest amount owed to the lien holder or could even discharge the lien altogether leaving the investor with nothing.
    
5. There are many state and local rules and regulations associated with tax liens.  If the investor does not follow all of the guidelines, the lien could be discharged due to a "technicality".
    
6. Researching the properties in a tax lien sale can take a great deal of time and resources.  The properties can be worthless strips of land, condemned houses or other governmental liens that will become the responsibility of the new owner upon title transfer.  If the property has been condemned and you acquire title, it will be your responsibility to bring the property back up to code (which could include remediation of lead based paint and/or asbestos) or demolish the structure.
    
7. Money.  Most tax lien sales require payment in full within 72 hours or else the sale will be canceled.  
    
8. Know what bidding method the county is using.  For example, with the bid-down ownership system, there may end up being multiple owners of the lien, which can become a nightmare if you try to foreclose.  Or, if the county sells to the lowest interest bidder, the investor could wind up with very little from their investment.

The Trump University Tax Lien Investing Home Study course prepares investors to profit in this exciting investment vehicle.

Related Post
What is a Tax Lien Sale?
Tax Lien Investing Another Great Niche

Related Training
Tax Lien Investing Home Study