Due Diligence in Tax Lien Certificates and Tax Deeds Investing

Article Written By: tedthomas

What does it mean to execute due diligence? When it comes to investments in tax lien certificates and tax deeds, it means that you must first have a thorough understanding of the system involved and that you must also thoroughly research the properties on the auction block before placing a bid at a tax-default auction.

The following are vital areas in due diligence that will aid you in making a good gain from tax lien certificate and tax deed investing.

Particularly when you receive tax-defaulted property by acquiring the deed, you own the land or housing free and clear of any encumbrance. This is because a tax lien is the first to record; it is given precedence over any other security interests in the property, such as a mortgage lender.

Every now and then, however, you may run into a state of affairs where the tax lien is just part of a security interest in the real estate. This normally happens in the case where the parcel owner is indebted to other creditors such as the IRS or has become past due on income or sales tax to the state government. In a several states, a mechanic's lien might also represent a right to a share of the parcel when it sells.

Environmental Dangers primarily concerns business real estate. The Superfund Act passed by Congress several decades ago makes any person who purchases land liable for any environmental impurity that may be on it. In other words, if you buy a lot and it is found that a fuel tank is buried there, you are responsible for the costs of removal and purifying the area, which can be quite expensive.

One circumstance that you might run into is the presence of additional lienholders, much as described in the first section of this article. When you commence the foreclosure process to access all legal rights to the real estate you bought via tax lien certificate or tax deed, other debtors outside the administration of the county taxing authority may become part of the dealings and demand their money. Only careful analysis will establish if this may be an issue.

The last area in which you must exercise due diligence is the possible bankruptcy. If someone has already initiated the bankruptcy filing process when their tax-defaulted property goes to auction, this could affect your rights to the parcel. 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 defending your right to attain clear title to the parcel - and this could take a stretch of time during which your capital are tied up and you have no way to retrieve your cash.

There are dangers associated with any type of investment - whether you favor the stock market, precious metals, or tax lien certificates and tax deeds. It is definitely desirable to exercise due diligence before using your money to acquire tax lien certificates or tax deeds that may or may not make you a considerable return.

About the Author

Ted Thomas - Visit Ted's website and receive your FREE copy of the 57-page Start Up Guide now at www.tedthomas.com

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