What Risk is their in Tax Lein Certificates?

Any comments would be appreciated!

Comments(15)

  • hibby7619th June, 2003

    Buying a $20,000 lien for beautiful florida property only to find out that it's a condemned home in an aligator infested swamp and a property that someone wouldn't take if you paid them is one example that comes to mind.

    Another is paying way too much for a tax lien because you don't know what you're doing and getting a crappy ROI.

  • j_owley19th June, 2003

    example well taken! thank you much!

  • Dynamic23rd June, 2003

    There are a few...

    As previously mentioned, mangrove swamp land...

    Environmental disasters: buying a lot that used to be a gas station, tanks still under ground (you'll be responsible for cleaning it up)

    Unbuildable (and therefore unsellable) lots: buying a lot where you or no one else will be able to build on because of water right restrictions, etc. Don't buy a parking lot, street, dump site, ditch, etc.

    Bankruptcy: your principal will remain safe but the bankrupcty judge can squash your interest to 0%.

    Weather: Hurricane distroys property (therefore always makes sure that you don't bid up your liens to above land value in places like FL or SC).

    Mobile Home: By the time your lien turns into your property the mobile home or manufactured home might be gone. Ooops. Better make sure that what you paid for the lien is not more than what the empty lot is for.

    Hope this helps.

  • hibby7623rd June, 2003

    Thanks for adding a few more examples.

  • sotuan24th June, 2003

    I just saw a perfect example for one of the warnings Dynamic saw.

    I walked a property that was eight acres in a beautifully wooded, upscale neighborhood across the street from a golf course. Okay... I shoulda known, right?

    Anyway, the vast majority of the property was water runoff for the neighborhood. The sides were steeply sloped, and ran between two adjacent neighborhoods. It flattened out into a retention pond. The only place you could build had power-lines running across it.

    The only thing I could think of to do with it would be to divide it up and try to sell it to the home owners that backed up to it. Although, I can't imagine what would motivate them to buy it. Perhaps if I threatened to cut all of the trees down... or store old vehicles or something.

  • Dynamic24th June, 2003

    Sotuan, yep, that's excatly what I'm talking about! I receive e-mails like these a lot, people buying waste sides between lots...beware.

  • j_owley24th June, 2003

    Once again, thank all of you it's been an eye opener. basicly its buyer beware. and be prepared to be burned

  • AKlein24th June, 2003

    Quote:
    On 2003-06-24 00:32, sotuan wrote:

    The only thing I could think of to do with it would be to divide it up and try to sell it to the home owners that backed up to it. Although, I can't imagine what would motivate them to buy it.


    Considering that they could take it by adverse possession.

    Quote:
    Perhaps if I threatened to cut all of the trees down... or store old vehicles or something.


    I don't know about where you live, but where I live creating an eyesore is a violation, and you can be made to clean it up.

  • starbelly26th June, 2003

    they probably can't take by adverse posession, you have to openly and notoriously hold the property for over 7 years to do that. That means put up a house, mailbox, fence, something of that nature, plus, you have to pay the taxes on the property for that whole time.
    [addsig]

  • j_owley5th March, 2004

    great points!!!

  • GlennI5th March, 2004

    Just to continue the fun:

    1) Properties that "look good" on the outside. As you cannot normally examine a house prior to a tax lien sale, you have to "guess" what the insides look like. I have seen "Shell" houses - 4 walls, no plumbing or electricty. I have seen water damaged -- busted pipes insides. I have seen homes that - at one time had standing water inside.

    2) Unknown development/rezoing that occured next to the property. In one case they were going to build a new chicken farm (at least they had the government approval to build). Urban myths about getting a property and only to have a new highway/runway built close by.

    3) Finally -- and I consider the most unpleasant, having the property be subdivided and the lot you though you were getting is now either an "outlot" or a otherwise less desirable strip of unbuildable land. Recently I have seen a rash of these where the owners/developers re-divided up the parcels to create some that they no longer want to pay taxes on.

  • SteveSch10th March, 2004

    Quote:
    On 2003-06-19 05:16, hibby76 wrote:
    Buying a $20,000 lien for beautiful florida property only to find out that it's a condemned home in an aligator infested swamp and a property that someone wouldn't take if you paid them is one example that comes to mind.



    I read about a person that did exactly this. He ended up selling it to a nature group for big bucks.

    Steve

  • jbccapital13th March, 2004

    Let's think about this. Anytime you are considering making and investment, it is your responsibility to do your OWN due dilligence. You need to know what you are bidding on and have all the numbers crunched ahead of time. If you don't, you can end up like the person who ended up with a swamp full of alligators, who obviously did not follow the process I just described.

  • j_owley12th September, 2004

    bump

  • active_re_investor12th September, 2004

    OK, now you know the risks.

    You also have to decide if you just want some interest or if you are trying to buy a property below market. If you only want the interest then buy liens where the value is so high that someone will pay it off. Properties that have a loan on them and are improved are safer as the lender will want to protect the position if the owner does not.

    If you are actually trying to get the property then you have a more difficult task. You might want the land lock property or otherwise something that is not obviously desirable. Then find a way to present it as a great deal to the person living next door. Even a dog lot if it is bought for 3 cents on the dollar might be worth 20 cents on the dollar to the owner next door. Offer him payment terms and I am pretty confident he will see the value of knowing that he owns it rather then you.

    Some folks can make money. Either they use a shot gun approach and write off the junk or they spend the time to do a fair bit of homework to get the right liens. With the right process you can make good money.

    John
    [addsig]

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