Tax Liens

What is a tax lien?
A tax lien is a lien imposed by a local taxing authority upon a piece of real property to secure the payment of taxes. Tax liens are typically imposed by a local government for non-payment of property taxes. However, other taxing authorities, such as the IRS, may also impose tax liens for non-payment of income taxes. In jurisdictions that impose personal property taxes, tax liens may attach to personal property as well.

Those tax liens into which Retirement Account funds are typically invested are property tax liens. These are usually good investments for beginners or for those who do not have a great deal of money in their Retirement Account. They are also fairly safe investments because they are secured by real estate. Because the sale of tax liens or tax deeds (where the property is sold to satisfy the taxes and the purchaser/investor receives a deed to the property as opposed to the sale of the tax lien where the purchaser/investor receives the lien and typically first position at the Recorder’s office with a right to foreclose the lien if the taxes aren’t paid in a period of time set by statute) is set by state or local statute, it is important to know and understand the laws of the jurisdiction in which you wish to invest.

How do these investments work?

There are really two ways in which you can invest in tax liens or tax deeds.

You can learn the rules yourself. Do all of your own research on liens available in the area in which you’d like to invest. Ask your Retirement Account custodian for a cashier’s check made payable to that county’s Auditor. Go to that county’s lien or deed auction. Bid on the liens you’ve selected and have the County title the lien in the name of your Retirement Account and deliver the lien certificate to your custodian.

Or

You can research companies that offer turnkey tax lien services to the public and contract with one of them to purchase liens in the area in which you would like to invest. There are a number of reputable companies in the marketplace, but do your research before signing a contract. Seek advice from your tax, financial and legal advisors. Once you’ve selected a company, ask your Retirement Account custodian to forward the necessary funds to the company. The company will purchase the liens, have them titled to your Retirement Account and have the certificates forwarded to your custodian. The company will also track the repayment of the lien and the expiration of the repayment period. If the period expires before repayment occurs, the company will typically advise you as to the foreclosure process and help you move forward with the process.