Tax Lien Certificates -- Pro's and Con's

Would you like to receive 15% to 50% return on investment (ROI) guaranteed by the government? Tax lien certificates (TLC) offered in many states and counties in the U.S., U.S Virgin Islands and Puerto Rico offer returns that high. While most states offer less than 50% your investment may be safe because it is secured with real property. A TLC is a note issued by the county or municipality on properties that are in arrears with their property tax. Some states allow these notes to be senior to all other mortgages and liens, including federal tax liens. These notes are sold at auction by the individual counties, municipalities and/or states that issue them. Investors receive a fixed amount of interest monthly written on the note for a specific time period. This amount is state mandated. If the outstanding debt is paid before the term of the loan ends, the government will send the investor a check for the initial investment and all outstanding interest due. These note terms typically run for one to three years. If the property owner does not pay, you may have foreclosure rights; the government may send you the deed to the property. This means you may realize a huge ROI.

There is some risk involved with the purchase of TLC's. The purchase of tax sale liens of properties under the control of Federal Deposit Insurance Corporation (FDIC) and those affected by the Drug Enforcement Administration (DEA), or if the owner files bankruptcy could possibly result in the loss of your investment. With due diligence, this risk can be reduced. Remember, not all TLC's are equal, some are better than others. Sometimes you will have to fight it out in court with other lien holders if it gets to the foreclosure stage. Proper title and bankruptcy research should be done or your tax lien may end up worthless. Inspect the property to insure you are getting some value. I heard of a man in Texas who found the property the lien was written on flooded twice a year. His research saved his investment. Don't trust the description of the property, have a look for yourself. TLC's can be lucrative, but it may take quite some time to realize and you are sometimes responsible for the tax payments during the foreclosure. Again, do your research on the property, legalities and taxes.

Anyone who can legally own property in the U.S. may purchase a tax lien. These sales are conducted by lot for cash, either on the spot or within a time frame of within 48 hours. There may be a pre-registration requirement before the sale. There are also rules of sale to be studied. Online sales are available. This is a time, labor and money intensive investment that is best done locally. The sales and auctions vary widely state to state. More information is available from the county offices. A list of unsold TLC's may be available from the county as well. Research of public records is to be expected for due diligence.

With three startup businesses before he was 21 years old, Matt Fox has the experience to help you create your own businesses for your financial future. See his blog at http://www.bizmaker.blogspot.com.

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