Tax Link Certificates — Advantages and Disadvantages

Would you like to receive a government-guaranteed 15-50% return on investment (ROI)? Tax Lien Certificates (TLCs) offered in many US states and counties, the US Virgin Islands and Puerto Rico offer just as high returns. While most states offer less than 50%, your investment can be safe because it is secured by real estate. A TLC is a note issued by the county or municipality on properties that are delinquent on their property tax. Some states allow these notes to be superior 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 monthly interest written on the note for a specified period of time. This amount is mandated by the state. If the outstanding debt is paid off before the end of the loan term, the government will send the investor a check for the initial investment and any outstanding interest owed. These note terms typically last from one to three years. If the property owner does not pay, you may have foreclosure rights; the government can send you the deed to the property. This means that you can get a great return on investment.

There is some risk associated with the purchase of TLC. The purchase of sales liens on properties under the control of the Federal Deposit Insurance Corporation (FDIC) and those affected by the Drug Enforcement Administration (DEA), or if the owner declares bankruptcy, could result in the loss of your investment. With due diligence, this risk can be reduced. Remember, not all TLCs are the same, some are better than others. Sometimes you will have to fight in court with other lien holders if you reach the foreclosure stage. A proper title search must be done and bankruptcy or your tax lien may end up worthless. Inspect the property to make sure you are getting some value. I heard of a man in Texas who discovered that the property the link was written on flooded twice a year. His research saved his investment. Don’t trust the property description, take a look for yourself. TLCs can be lucrative, but they can take a long time to complete, and sometimes you are responsible for tax payments during foreclosure. Again, do your research on ownership, legality, and taxes.

Anyone who can legally own property in the US can purchase a tax lien. These sales are made in cash batches, either on the spot or within 48 hours. There may be a pre-registration requirement prior to the sale. There are also rules of sale that must be studied. Online sales are available. This is a time, labor and money intensive investment that is best done locally. Sales and auctions vary widely from state to state. More information is available at the county offices. A list of unsold TLCs may also be available from the county. Investigation of public records is to be expected for due diligence.