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.
1. 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.
2. 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 site, 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.
3. 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!
4. 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.
5. 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.
by Rachel A. Seidensticker
Rachel A. Seidensticker is an administrator of the comprehensive http://www.TaxLienLady-database.com which is a dynamic database for tax lien investors to seek all necessary information including practicing their due diligence.
By Tory September 30, 2011 - 12:59 pm
Hi Joanne,
Thanks a lot for the information. Yeah, due diligence sounds like it can be tough if you only wants to invest via online auctions. I may just stay away from the vacant land all together, and start out with the smaller liens on residential and commercial properties. Do you recommend contacting the zoning the officer in order to do due diligence on residential and commercial properties also? Or are there better methods to do it?
By Tory September 26, 2011 - 12:38 pm
Hi Joanne,
I’m set to attend an online auction here soon. Actually, online auctions will be my primary means of investing in tax liens. How do you recommend doing due diligence if one is not physically collocated near the county (mainly on vacant land)? I ask, because I recall you saying that you don’t recommend buying liens on vacant land unless you can physically inspect it. Thanks in advance.
By Joanne September 28, 2011 - 10:27 am
Hi Tory,
Vacant land can be tricky unless you can actually look at the property. There are things that you just cannot tell from an areal photo. I recommend that if you can’t physically look at the property that you find someone who can look at it for you. If you cannot do that then I recommend that you call the zoning department of the municipality where the property is located and ask the zoning officer whether the property or properties that you are considering investing in is buildable. You also need to do the due diligence that you would normally perform on properties that aren’t vacant. It can be difficult getting a true market value for a property that doesn’t have any improvements. That were it can pay to talk to a realtor or real estate broker in the area.
By michael florkowski September 21, 2011 - 12:29 pm
Hi joanne thank you yes I toke Robert allen course, if i knew about michagan haveing a course i would have rather taken the state course, i have been going over a number of sites online again Thank you for the information michael florkowski
By Joanne September 22, 2011 - 6:30 pm
Hi Michael, I suggest that you get my course Online Tax Deed Sales, it has information about the Michigan tax sales as well as other online tax sales, and shows you how to do your due diligence online. The course is only $97. I don’t have it advertised but you can get access to it at http://www.OnlineTaxDeeds.com.
May I ask what you paid for the course that you took, as Robert Allen has different levels for his courses and I’m curious to know which one it was that did not have the information that you needed about where to get the information for the tax sale.
By michael florkowski September 20, 2011 - 9:47 am
How do i get a list i just completed a course on tax liens and deeds i live in michigan my email {mflorkowski821@gmail.com]
By Joanne September 21, 2011 - 9:56 am
Hi Michael,
You just completed a course on tax liens and tax deeds and don’t know how to get a list? What course did you take? Michigan is a deed state and many of the tax sales are online. You can find the information for the Michigan tax sales at http://www.tax-sale.info