Tax Liens - Losing All of Your Principal

Gaithersburg, MD · Member since 2016 · 36 posts · 12 votes

Based on what I know so far, the only way to lose all of your principal in a tax lien investment is by having your certificate expire because the taxes were not brought current and you did not begin the redemption process. Also assume that if you begin the redemption, your attorney correctly runs the process. Is this correct?

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Greg ScottPro Member

Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes

Incorrect. I'll tell you a more common way to lose your principal.

I invested in Illinois Tax Liens through a company called Platinum Investment Properties (Charles Sells). Part of the reason I did that was the tax lien processes can be very complicated and if you mess up, you can lose your rights. Platinum seemed like a good company. Their claim was that they researched properties and only bought tax lines where the value of the property was much higher than the lien. The logic was that these liens would be very likely to be redeemed or the properties could be foreclosed on for profits.

Reality was their marketing materials were far better than their execution. In a few years they turned my $40K into less than $10K. Now on paper, I still own those tax liens and theoretically they are worth something. Theoretically, someone might want to buy these parcels of non-farmable land in the middle of nowhere and pay on my lien. In reality, nobody has paid off any of my 50 or so liens over 7 years. I consider them worthless.

Lesson learned. I now stick to owning real assets that I control myself.

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Greg ScottPro Member
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
7y
Incorrect. I'll tell you a more common way to lose your principal.
I invested in Illinois Tax Liens through a company called Platinum Investment Properties (Charles Sells). Part of the reason I did that was the tax lien processes can be very complicated and if you mess up, you can lose your rights. Platinum seemed like a good company. Their claim was that they researched properties and only bought tax lines where the value of the property was much higher than the lien. The logic was that these liens would be very likely to be redeemed or the properties could be foreclosed on for profits.
Reality was their marketing materials were far better than their execution. In a few years they turned my $40K into less than $10K. Now on paper, I still own those tax liens and theoretically they are worth something. Theoretically, someone might want to buy these parcels of non-farmable land in the middle of nowhere and pay on my lien. In reality, nobody has paid off any of my 50 or so liens over 7 years. I consider them worthless.
Lesson learned. I now stick to owning real assets that I control myself.
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Tom Scott
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Gaithersburg, MD · Member since 2016 · 36 posts · 12 votes
7y
That's an awful outcome, Greg. Thank you for sharing your story though.
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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
7y
In SC, there is a 12 month redemption period. If redeemed you get your money back plus up to 12% interest. If the property is not redeemed in 12 months then a deed shows up in your mailbox. You don't do a thing or pay any money if the property is not redeemed. It just doesn't get any easier.
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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
7y
@Tom Scott
As long as the property has value. I have seen people buy tax liens on land which is not buildable etc or was a cliff. No way to sell it.
Also if you get the property and it is occupied you will be in for a battle evicting someone which can add to your costs
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Ned CareyPro Member
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Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
7y
@Tom Scott Even though I am very careful and experienced I still have the occasional lien I walk away from. Usually it is because of fines and water bills that are so high the property is not worth taking. Occasionally a property get destroyed by fire. Although the number I have walked away from is probably well less than 1% of the liens I have bought.
The main concern is the value of the property. If you have to foreclose, does the property have enough value to cover your expenses?
Yes, your attorney should do all the work if you proceed with a foreclosure.
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Joe Donohue
Property Manager · Indianapolis · Member since 2015 · 46 posts · 34 votes
7y
@Tom Scott There are many ways to lose you principle.

First, before bidding, make sure you actually drive by the property and it is still there. Make sure that it is not in a flood plain. Just because you drive by it on a nice sunny day doesn't mean its not underwater when it rains. When you drive by, pay particular attention to the roof.

Second, when bidding, make sure you bid on the right property. DUH

Third, once you have the tax lien certificate/deed, make sure to FOLLOW THE STATUTES for that State. If you employ an attorney, request copies of everything they do - all notices, all title work. I take it a step further and do my own work (duplicate work) on high value liens to make sure nothing was missed. Do this especially when it is the county's job to do something (like SC or Marion Co Indiana).
Fourth, during the redemption period is a good chance to again drive by the property and get an in-depth look at what is going on. Dig through title work, visit the county, look for anything wrong. Don't forget to look up Environmental issues.

Finally, File petition for deed in the time allotted.

@Greg Scott IMO, there are so many problems with the Charles Sells model. He is trying to attract passive investors into an active game. or vice versa. Real Estate is first a local business, and the idea of spreading out into all these states without having real boots on the ground is to me always suspect. Also IMO, he is in the wrong states and counties. I've heard so many bad stories.

Hope this helps!
Joe Donohue
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