Tax lien investing may sound lucrative, but it is risky and it is not for novices. You need to understand real estate auctions and the specific laws of your county before you dive in.
Not realizing the risk involved. A high rate of return might tempt you to jump into the world of tax lien investing. But, if the property owner doesn't pay up, you could wind up with a clunker of a house, and you won't make back the money you sank in buying the tax lien certificate, even if you manage to sell it. Also, if the property is tied up in bankruptcy proceedings, then the bankruptcy court will decide how much you will get on your investment. In that case, you may wind up with nothing.
Not understanding the process. A tax lien auction happens only once a year, so you have plenty of time for research. Call your city or county tax department, and ask them when the auction will take place and what you need to bring with you. Sales will be advertised in your local paper, and you can take a look at the properties. That's a good idea because, if you obtain a tax lien certificate, you may very well wind up owning that property.
Not having cash on hand. Remember, counties are auctioning off house liens because they need money from property taxes. They won't take credit. You will need to have the cash on hand, often in the form of a cashier's check.
Not knowing the local laws. Local laws will set your obligations if you purchase a tax lien, and not all the laws will be the same. You need to understand your specific obligations and how long it takes before you can claim the property, if the owner is unable to pay the taxes.
 | A lien gives a creditor a stake in a debtor's property if the debtor cannot or will not pay. When the property is sold, then the lien holder will receive a share of the proceeds. |
 | A notice of intent to lien is an announcement that someone to whom you owe money is about to declare that they have a claim against your property. This is one document that you want to take seriously. |
 | Through tax lien certificates, you can invest in people who have not paid their property taxes. If the property owner pays the taxes, you will receive your investment, plus interest. |
A lien waiver protects you from contractors sending you the bill and placing a lien on your house if a builder, developer or contractor did not pay for the work. |
Federal tax liens are often placed on homes if homeowners cannot pay Uncle Sam. If this describes your situation, you may be able to subordinate the lien so you can get a loan that will help you pay your bill. |
