Are Tax Lien Certificates a Good Investment?

Let's first define what a tax lien is. A tax lien is a security that is placed upon a property for the nonpayment of the properties' or personal taxes which are paid either by the property owner or by the mortgage company. An interesting aspect abut a lien is that the debt is attached not to the person, but to the property, so if a new owner buys the property then the responsibility to pay the lien lies on him.

A tax lien certificate is a document that will allow you to foreclose on the property if its lien hasn't been paid. By foreclosing the property and paying taxes by the certificate the property becomes yours. This is a great way to invest because you not only have the right to foreclosure the company if the lien is not paid.

By investing in a tax lien certificate, you will be paying to the local government the taxes that the owner property owes, and by doing so, the property owner is forced by law to repay you in a monthly basis at an interest rate sometimes as high as 16% annually; which is a lot more than what your bank offers. And in the case that the property owner fails to repay the taxes for a certain length of time, then you get the right to foreclosure the property and become the new owner at a fraction of what the property costs.

Although tax lien certificates seem a very good investment, and you might think you win all the time, the reality is that there are certain circumstances in which you can lose money. Usually you, as the purchaser of the tax lien certificate, will have the most rights to recover the property you paid the taxes for, but if the owner of the property already owes money to let's say the IRS and the owner declares bankruptcy, the IRS will have more rights and will keep the property you paid the lien for and you'll end up empty handed.

You must do your research, and investigate the situation of the property before you invest in it. Try to find out the financial situation of the owner and also revise the property thoroughly considering aspects such as location, or risk of flooding. Make sure the property is in a good standing and you'll make a great investment.

Overall investing in tax lien certificates is a powerful way to generate a steady income or to buy properties at very low prices; however you must be savvy and invest in properties that you have researched first and that will have a very low risk.