Tax Lien Due Diligence

Tax Lien Due Diligence


Hopefully you’re already aware that tax liens are not “guaranteed by the government” as some would mislead you to believe.  They can most certainly result in a total loss if due diligence is not performed correctly before purchase.  Indeed, most liens offered at a typical sale should not be purchased.

A tax lien is secured ONLY by its underlying property – and ONLY if you properly follow procedures throughout the sale process.

If you buy tax liens that are against quality property, most will pay off, and yield a nice rate of interest, usually at least 10%.

However, buying even a few “bad” liens that don’t redeem, and result in worthless property, can wipe out all your interest profits and then some!

So the due diligence process is essential.  Here are the main things you need to assess before buying any tax lien.

Property Value

The most basic item to confirm, is that the property underlying a lien you buy is worth substantially more than the total investment you would have in the lien at the time you might acquire it.  Keep in mind that you’ll incur significant extra costs over the life of the lien that can exceed the original price you paid at the sale!  These costs consist mainly of subsequent tax payment and legal costs – both for noticing and for the eventual foreclosure of the property.

If, after factoring in all these costs, you would not make a significant profit after acquiring the property and quickly reselling it, you can stop here and move on to the next lien.

At first, take advantage of any online resources (like county assessor website) to eliminate worthless properties.  Then, you’ll need to drive by each and every property remaining to confirm that any improvements are in the expected condition and that location of the property is acceptable.

Double-Checking Your Short List

If you’ve narrowed your list down to just those liens with suitable underlying properties, and driven by each of them, the remaining list will be a fraction of its original size.  Now you have to perform more in-depth research on these liens.

Though you’re reasonably sure at this point that each property has sufficient value, and that you’re OK with the location of each property, now you must make sure you’ve evaluated the right property!

With most tax lien sales, you’re only purchasing a parcel number or legal description.  The address provided is only as a reference.  In other words, though the listing shows 3984 Main St, and you drove down Main St to find a house with an address of 3984, you may not be purchasing a lien against the house you saw!

There are several ways this could happen.  Most commonly, the property on which the house sits consists of two lots.  You may be buying a lien against only the garage or side lot – or you may be buying half the house only!

Another common issue is that you can’t readily tell exactly what land you’re getting when you acquire a parcel – afterall, there are no stakes out there outlining the property bounds when you drive by.

So, for each and every parcel you investigate, you must view aerial photos with the lot lines superimposed.  Until recently, this was done by visiting the county and viewing huge books (called Sidwell maps) where the actual property could be seen in relation to streets and improvements, so you’d have a very accurate picture of what you were about to buy.

Now, this investigation can often be done from home, as many counties now have “GIS” satellite maps that accomplish much the same purpose.  GIS maps are much better though, because you can quickly look up properties by parcel number, and can do so from home.

If you’ve calculated your maximum investment for each lien, evaluated each underlying property for value, and confirmed that you were evaluating the right property in the first place, you are now ready to buy some liens – and if you’re lucky enough to obtain a property from a lien, you’ll actually be glad to own it!

{ 14 comments… read them below or add one }

BIPIN July 13, 2012 at 2:59 am



admin July 24, 2012 at 3:52 am

Sorry – these aren’t usually good opportunities so I don’t pursue them. The over the counter stuff is what’s left after all the good properties are purchased.


Hamza July 20, 2013 at 8:57 pm

that’s not true. some counties may have a lot of properties listed OTC because there weren’t a lot of investors that came to bid . I have purchased plenty of good liens through OTC .


admin August 2, 2013 at 9:14 pm

I’m glad that was your experience! Has that been your consistent experience at auctions throughout the nation? Betting not


William Romeo July 13, 2012 at 11:00 am

Great information, Thank You. Want to communicate to home owners’, before the auction, and after the auction. Can this be done.


admin July 24, 2012 at 3:52 am

You can communicate after the auction if there is a redemption period (tax lien states mostly). But after most tax deed sales the owner can’t sell you the property any more.


Esther Otim June 2, 2013 at 1:25 am

Thanks for the info. very helpful.


Louis Jackson August 23, 2013 at 12:31 am

Need to know how to get liens without going to auctions.


admin August 27, 2013 at 6:48 am

You can get them by assignment from other people – just be careful.


dave j November 27, 2014 at 3:59 am

there must be some way one can purchase tax lien certs. on the internet safely without having to jump on a plane to the usa from Australia. gday dave j


admin December 8, 2014 at 3:48 pm

Certainly not – buy them online!


orawan January 8, 2015 at 5:50 pm

Hello,How do i conducting Du diligence,on auctions property? for the county,and state taxes?.


admin January 27, 2015 at 5:31 am

It varies widely per state – choose your state and get familiar in depth. County and state taxes are the least of your worries, you need to investigate the property value and accurately assess how much you will have in it by the time you acquire it.


mildred alexander January 28, 2015 at 7:19 am

reply Looking forward to getting your e-mail and all of the good information.


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