Due Diligence in Tax Lien Certificates and Tax Deeds Investments
What does it denote to display due diligence? When it comes to investing in tax lien certificates and tax deeds, it means that you must first have a full knowledge of the process involved and that you must also meticulously investigate the parcels available before placing a bid at a tax-default auction. The subsequent are four key areas in due diligence that will assist you in making a good return from tax lien certificate and tax deed investing.
Foreclosure
Usually when you receive tax-defaulted real estate by purchasing the deed, you possess the property free and clear of any debt. This is because a tax lien is the first to record; it is given first concern over any other security interests in the real estate, such as a mortgage lender.
Once in a while, however, you may run into a situation where the tax lien is just one piece of a security interest in the parcel. This usually happens in the case where the property owner owes other creditors such as the IRS or has defaulted on income or sales tax to the state government. In a some states, a mechanic's lien might also be entitled to a right to a portion of the property when it sells.
Environmental Risks
This concern fundamentally is related to retail parcels. The Superfund Act passed by Congress a while back makes a person who acquires property liable for any environmental contamination that may exist on it. In other words, if you purchase a parcel of land and it is discovered that a fuel tank is buried there, you are culpable for the costs of eradication and cleaning the land, which can be quite pricey.
Added Fees
One instance that you might run into is the presence of additional lienholders, much as described in the first segment of this article. When you begin the foreclosure procedure to get all legal rights to the parcel you purchased via tax lien certificate or tax deed, other lienholders outside the jurisdiction of the county taxing authority may become part of the proceedings and demand their funds. Only careful research will show if this may be an issue.
Bankruptcy
The final area in which you must perform due diligence is the potential bankruptcy of the defaulted parcel owner. If someone has already commenced the bankruptcy filing process when their tax-defaulted real estate goes up for sale, this could involve your rights to the property. Another issue to be aware of is that the property owner may file bankruptcy at some time during the tax lien or tax deed redemption period. In this case, you could wind up in court battling for your right to achieve clear title to the property - and this could take a stretch of time during which your capital are tied up and you have no alternative to retrieve your cash.
There are dangers associated with any type of investment - whether you opt for the stock market, precious metals, or tax lien certificates and tax deeds. It is definitely desirable to perform due diligence before using your funds to buy tax lien certificates or tax deeds that may or may not make you a considerable return.
About the Author
Ted Thomas is America's Tax Lien Certificate and Tax Deed Authority. He has helped thousands of students graduate from his investment courses and make amazing profits. Visit Ted's website and receive your FREE copy of the 57-page Start Up Guide now at http://www.tedthomas.com.