Tax Lien Investing – Reasons NOT to Buy a Tax Lien

Recently someone contacted me with a very “valuable” lien that they had for sale. They didn’t have the money to foreclose on the lien and wanted either to sell it or partner with someone on foreclosing it. (Have someone else hire a lawyer to foreclose on the lien and share in the profits). When I checked into the property, I found out that it was a vacant piece of land with little value, and the lien holder had already invested more than $16,000.00 into this lien. They had paid subsequent taxes over a few years and when they stopped paying the taxes the lien was struck off to the municipality.

Because this was not a good property the municipality never foreclosed the lien as well. The original lien was purchased back in 1993. The municipality picked up the lien in 1997 and the back taxes owed on this property now are probably more than the property is worth. I had to give her the bad news that her lien is not worth foreclosing on and she won’t be able to sell it. If she only knew when NOT to buy a tax lien, this bad investment would have been avoided.

So here is a list for you of a few reasons not to buy a tax lien. Be sure and check the items on this list for tax sale properties before you purchase a tax lien certificate on the property and you’ll avoid taking an unnecessary risk with your money.

o There are very low annual taxes for the property (lower than usual for the area)
o You can’t find the property on the tax map
o You can’t locate the property to look at it
o The property has an unknown owner
o The property is land locked with no right of way
o The property is not large enough or not the right shape to build on (check zoning)
o There are prior liens on the property and the prior lien holder is at the tax sale
o The property is or has been contaminated (check the state environmental web site)
o The property is condemned or about to be condemned (eye-ball the property or check with the municipality)
o The grade of the property is too steep to build on
o The property is in a flood zone

These are just some reasons not to buy a tax certificate. I don’t want to give you the wrong idea. Investing in liens can be very profitable. I believe that it’s an excellent way to invest your money safely if it’s done properly. You can find out all the reasons why I like in tax lien investing in my article Why Do I Invest In Tax Lien Certificates.