Purchasing Tax Lien Certificates with SDIRA

21 Replies

I would like to use my SDIRA money to purchase tax liens. At the moment, I am just looking at the online OTC liens but in the future, live auctions may be another option. I know people do use SDIRA funds to purchase these but with these needing near-immediate payment, I am struggling to figure out how this is accomplished outside of a checkbook IRA account. I have Equity Trust Company and I have a Tax Lien DOI. Each DOI has an area where you list addresses and Parcel numbers you are bidding on and then an area where you can request the amount of funding. I understand how this can work for a live tax sale but what about the online sales? Most require that checking account info to pay for the lien. I doubt that the county is OK with a certified check that would take days to arrive?

How do those of you that purchase online OTC tax liens through a SDIRA accomplish this?

Additionally, my SDIRA company requires the appointment of a tax lien servicer.  Do these exist?  I guess the statement from Equity does go on and say that the retirement account owner.  Does anyone use a tax lien servicer?

Here is the paragraph from the DOI:

"To purchase tax liens for a self-directed Retirement Account, Equity Trust Company requires the appointment of a tax lien servicer. The servicer may be an independent purchasing agent or the Retirement Account Owner, as long as the Retirement Account Owner does not receive any compensation for performing this service. The agent will be responsible for providing the custodian with the necessary information to properly administer the account. The following agreement lists the responsibilities of the Retirement Account Owner and/or the Tax Lien Purchasing Agent......."

@Sandy Uhlmann

If you go to the tax lien auction or buy liens over the counter, you can request checks from Equity Trust in various denominations.  This is the same procedure for Sheriff Sale purchases.  Some jurisdiction require certified check, which Equity Trust can also provide at your direction.  At the sale the bidder turns in the enough checks to cover the purchase price and the county give change in form of a check, usually sent back by mail made out to Equity Trust.  The county is not ok with checks taking days tio arrive.  You need to order the check in sufficient time ahead of the sale to have the checks at the time of the sale.

I have never done liens, although I did buy a property at auction using my SDIRA that I have 'check book control' over. To me, I dont understand why in situations where people need 'fast access' you would not just switch to a company that offer the 'check book' feature?

Dan Dietz

@Sandy Uhlmann

Tax liens and other quick transaction time investments are one of the areas where a checkbook IRA LLC or other plan offering checkbook control are a tremendous advantage. You can build a table with a pocket knife, or you can use the right tool for the job...

@Sandy Uhlmann

The self-directed IRA LLC may be a better route, especially if the plan is to invest in multiple tax liens, to avoid holding fees, processing fees and process timely investments since one gains checkbook control over their IRA through the IRA LLC arrangement.

@Sandy Uhlmann

What are the interest rates you expect to receive in your state? 

Online OTC liens?  Take notes along the way cuz you will be the BP expert on this. 

Another vote for checkbook control!  Here's 3 examples where it saved me. It seems every county has different ways to collect the money but every county wants to be paid quickly. In my first year I participated in 6 different counties. I went to the bank and got different denominations of cashiers checks (@ $8 apiece). First auction, they wanted the bid and overbid paid separately. No change. After combining different checks, I'd still be paying a couple hundred dollars too much. Then I noticed the guy next to me paying by personal checks. You won't find many counties allowing that. Whipped out my checkbook and wrote two checks. Went to another county, again, no change!  Went to the bank and cashed a few cashier checks and paid exact down to the $.32. At the last sale, they found my cashiers checks too old (4 weeks). Got on my iPad and wired the funds in. 

@Sandy Uhlmann I also use Equity Trust. They do not allow for ACH debits, which is how most auctions in MD work.  I had to create a company managed by someone else to invest in my area. I can't believe that 10 years later ETC hasn't figured out a way to do ACH debits.

@Ned Carey I called Equity Trust Company and verbalized my displeasure with them letting them know that essentially people that wanted to purchase tax liens online are unable to do so with the current way that Equity handles purchasing tax liens within the IRA. I told them that this is the wave of the future and that they need to find a way to address this problem or they will be finding that investors will be choosing other SDIRA companies over Equity and/or will be transferring their assets, or at least their cash in their accounts because of this. I told them that this was being discussed on the BiggerPocket forum currently and they need to address this issue swiftly.

I might be looking for another SDIRA company that allows checkbook control as I don't see much option if I want to continue to invest in online tax liens.  Recommendations anyone?

@Sandy Uhlmann

It is not just Equity Trust, but any custodian-held IRA account that will be unsuitable for this type of investing. They have been for decades.

Because with such accounts the custodian needs to sign all documents and issue all payments, that 3rd party processing layer is a barrier to any time-sensitive investments.

The alternative is to establish a Checkbook IRA LLC or Solo 401k, which will put you in control as opposed to the custodian. While some firms like Equity Trust do not support this model and will go out of their way to try and scare you away from such a plan, that is only because it eats into their fee income. The structures have been around for a very long time, and the IRS has scrutinized such structures.

@Sandy Uhlmann check out IRA Services Trust for checkbook SDIRA. or Sense Financial. It will cost about $2k to get it set up, but it's a one time fee, and will pay for itself in fewer fees, and you have control and can make same day payments.

The problem with any investment in a self-directed IRA is that the custodian can't issue the checks fast enough generally it takes 48 to 72 hours to process paperwork and issue checks on behalf of the IRA. Checkbook control is the only way, plus as manager you sign investment documents, through an IRA the custodian must sign. IRA's are good for limited transactions, like raw land, private placements, physical metals etc.. go to American Estate & Trust, or Accuplan Benefits Services.

@Sandy Uhlmann , PM me and I can refer you to a company that does checkbook IRAs.

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Initially the idea of a 'checkbook IRALLC' was rather intimidating for me,  so, after investigating on Bigger Pockets and elsewhere,  I went through Sense Financial and they were wonderful.  I have no problem buying liens online.

Take a look at Specialized IRA Services (SIS) for the Roth SDIRA & Traditional SDIRA accounts & any associated SDIRA/LLCs. SIS allows checkbook control for any of the permissible RE investment strategies, including tax liens. SIS founder, Edwin Kelly, recommended "The Self Directed IRA Handbook" by Matt Sorensen, which was stellar! After reading it, I used Sorensen's firm to set up two SDIRA LLCs and have gone back to them for advice on occasion.

My wife and I talked with Equity Trust about setting up similar structure for my wife's activities.  We were particularly attracted to Equity's learning library, but they would not permit checkbook control - unacceptable for the range of activities we engage in.

Sandy, I agree. Tax lien sales, whether online or live will be quite a bit more difficult without checkbook control. I also got a debit card for my accounts because some of the LLC hurdles (out of state registration, certificates of existence & good standing), require online payment. Also, foreclosure payments will be a whole lot easier with checkbook control.

Sandy, to offer some other options for you to consider...

When I had some initial problems with Specialized (since corrected) I asked Matt Sorenson for other options. Here are his recommendations for options other than Specialized, but Specialized remains at the top of my list now that they have corrected some personnel & process hiccups:

  1. Provident Trust Company.
  2. IRA Services Trust Company.
  3. Vantage IRA.
  4. Sunwest Trust Company.

Anyone have or know someone with experience using a SDIRA LLC to purchase tax liens in Texas?

I think this would be tough to do.  Most of the sales I attend want cashier's checks the same day or they will resale the property that day.  Most don't want personal checks.  Occasionally they will take cash.

You might check with them and see if they will take a letter of credit issued in the name of the SIDRA and then you can request the check to be sent.  Some might allow this.

Otherwise you get cashier's checks from the SIDRA for various amounts to get close to the purchase price if the seller allows this also.  Then they could issue refund for the balance.  Some may not want to do this.

@Bruce Lynn & @Domonick S. , I buy TLs in my SDIRALLCs (an personally). The first auction that I tried using the LLC, they wouldn't take a check, they wanted cashiers's. Conversation with the Treasurer's staff after the auction shed some light, and an option... they would take a personal/corporate check with bank letter certifying funds. Now I attend with that letter, in general terms and general limits, for each entity I intend to buy under, including personally. I get a letter for each entity at the beginning of the season and use the same letter throughout the season.

I've only had to use a Cashier's check once and that was only the first time I did business in that municipality.  After that time (and sometimes with above reco) I have been able to use my checkbook for nearly all other auctions. The only exceptions are online auctions, where the ACH account has to have some level of funds in it in order to bid and has to be fully funded by the end of the day.  

If it turns out the municipality actually does need Certified/Cahsier's check, set up an account with a bank chain that his high presence throughout the area you are interested in.  Move money in/out as needed so you can get to the funds right after the auction.

Good Luck!

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