Tax Liens and Tax Deeds

Tax liens and tax deeds are a substantial and safe investment grossing significant returns ranging from 8-18%. However, like any investment, it is important to investigate what you are investing in and protect yourself from damage and monetary loss.

Interested investors are coming out of the wood work to try their hands at tax liens/deeds. However, since this form of investing is starting to become well-known and popular, there are more and more inherent risks, including scam artists. There are several steps an investor can take to heed caution and protect his/her hard-earned money.

  • Know the state and county laws
  • Every state varies in their laws governing tax liens/deeds. The first and foremost pertinent information would be finding out if a state uses a tax lien, a tax deed, a redeemable deed, or any combination thereof, because they are all very different processes. The laws governing tax liens/deeds determine when, where, and how a sale is held in each county. Most states require the tax lien sale lists to be published in a newspaper 3-4 weeks in advance. This is important information to know because before you purchase a lien, you will want to know what is available for purchase. Other laws include the redemption period for the tax lien/deed. These vary as well between 2-4 years. This, too, is important since as an investor you will want to know how long you will be receiving your return as well as when you may potentially foreclose on the property for ultimate ownership. Overall, to practice your due diligence, the first step is to understand the laws governing that state’s tax liens/deeds. Although there are varying differences, most states have a similar overall procedure. It’s the minor details that can catch you off-guard and leave you dangling with no investment to speak of.

  • Investigate the lien and the property it is against
  • Another step to your due diligence is to simply become an investigator. The first step is to find out what type of tax lien is held against the property and of course how much it is for. This is simply stated in the tax list itself or found in assessors’ sites, treasurers’ sites, or other public records sites. By gaining access to the lists from the county entity, newspaper, or online database, you will find extremely important information in helping find out more about the property itself and the lien against it. It’s crucial to weigh all the factors surrounding the property and the lien including the amount to know if it is a worthy investment.

    Seek service from a real estate agent

    A great resource to find out about the property that the lien or deed is against is through a local real estate agent. Once you have the address of the potential investment property, which can be found using the tax id number on the tax sale list, a real estate agent can be of great service. Have him/her search the location of that property and what its market is doing. Once you know a property’s market value including the neighborhood and services available in that area, you will be able to make the best, informed decision about whether or not to invest in that property. Whether or not it would be a good rental, easy to flip (fix up and sell), or possibly live in, it is important to know everything you can about the property!

  • Hire an attorney who specializes in tax liens/deeds
  • If you obtain or plan to obtain a tax lien, it is important to seek the legal advice of an attorney who specializes in tax liens/deeds in order to safely invest your money. They will guide you through the process of eventual foreclosure if the property owner never pays off the lien. There will be significant paperwork involved and although most county entities will assist you, they cannot give legal advice and will only help so far.

  • Hire an investment agent to work for you
  • If you are a large investor or uncomfortable practicing your own due diligence, a good resource is an investment agent. However, BE WARE! As stated above, scam artists are out there and this is a big area of caution. Again, practice your due diligence by looking up the agent and their credentials including a Better Business Bureau search or contacting past clients to find out about their experiences.

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