Entrust Learning Center > 8. Newsletter Archive > June IRA Insights: Tax Lien Certificates

June IRA Insights: Tax Lien Certificates

Whether you invest with your self-directed IRA or personal funds, tax lien certificates can make sense for slow and steady growth in your portfolio. Tax liens are booming in states where homeowners are missing mortgage payments.

By: Lisa Bromma

IRA Insights

By: Lisa Moren Bromma

Whether you invest with your self-directed IRA or personal funds, tax lien certificates can make sense for slow and steady growth in your portfolio. Tax liens are booming in states where homeowners are missing mortgage payments.

What is a Tax Lien Certificate?

Counties have a responsibility to provide police, fire, schools and other services to their citizens. These services are paid by property taxes from homeowners. When a homeowner does not pay their property tax, they become delinquent and a lien is put on their property. The delinquent lien is sold at auction in order to raise the funds needed to pay police, fire, etc. Some counties auction off delinquent taxes at face value through a lottery system while others do a bid for lien system.

My Story:

In the 90s, I bought tax lien certificates in Wyoming where the interest rate the first year was 18% which was paid upon redemption of the tax certificate that the homeowner or lender paid off. With little competition and a lottery system of ping pong ball selection, buying these were easy. The most important thing I had to know was what I was buying! I did not want any hazardous waste or condemned property. Once, I paid a local resident in bagels from NY to provide me the research I needed to determine if I wanted the property or not.

Then word got out and competition for these babies got fierce, especially with interest rates falling and house prices rising...the banks became competitors and bought their own liens for obvious reasons.

Now, with the real estate mess we are in, tax liens are on the rise. Chances are if a person did not make their mortgage payments they will probably not be paying their property taxes either.

Rules of the Road if you Buy Tax Liens:

1. Know the rules where you are buying. Whether the auction is live or online, how are these advertised, are they in a tax lien state or a tax deed state?
2. What is the redemption period (how long do you have to hold the certificate) before you sue for the deed and get the property?
3. Understand that tax liens take precedence over mortgages. This is why lenders may come in and buy tax liens. The only thing senior to a tax lien is an IRS lien.

These make ideal investments in a self-directed IRA as you can invest few dollars for a nice return. For more on how to buy tax liens in your IRA visit The Entrust Group.

Lisa Moren Bromma has been a real estate investor since 1978, a note investor since 1998 and has worked with some of the top private mortgage institutional buyers. She is the author of Real Estate Investing for the Utterly Confused, and Wise Women Invest in Real Estate. Visit her web site Wise Women Investor.

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