WARNING: Dangers Of Buying Tax Liens From Resellers and Wholesalers in Alabama

[Christine Garnier]

I understand that not everyone is going to like this post but I feel this is our duty to warn others of potential investment risks that could be prevented. This time, I want to expose the danger or buyings tax liens or deeds from resellers and wholesalers in Alabama. Most of them do not own these liens or deeds, they simply fill a form on the state's website to get a price notice. When they receive it, they resell it for profit and this is where you could get hurt.

In Alabama, whether you buy a tax deed or lien from the state, your investment is protected meaning that, if the previous owner who has 3 years to redeem his property, you will get your investment back. However, resellers and wholesalers usually charge double to include their "fee" and if you buy from a reseller or wholesaler while the previous owner redeems his property, then you lose half of your investment. Example:

1) You buy a tax lien or deed from the state for $5000, if the previous owner redeems his property within the redemption period, you will receive your $5000 back, with interest.

2) You buy the same tax lien or deed from a reseller or wholesaler, they will probably charge another $5000 or so, on the top of the original tax lien or deed, so the price for the same item will cost you $10,000. And if the previous owner comes and redeems his property within the redemption period, then.... you lose $5000 overnight.

I know this post is going to upset some of the tax liens and deeds resellers or wholesalers and it's fine with me. I believe that, out of honesty, if you know that there is a risk your buyers could lose half of their funds, you should disclose this information before making a quick sale. This is why I strongly support new upcoming legislation regarding resellers and wholesalers. If you did not have a specific contract with the original seller, then please be honest and disclose the risk to potential buyers. 

As such, when it comes to tax lien investing, i do not recommend buying from resellers or wholesalers. I want to thank Denise Evans for her knowledge, and if anyone is serious about investing in such instruments, please contact  people with credentials that can help you get started safely.

[Denise Evans]

You are absolutely right, and everyone should consider the dangers and your warning. BUT, before making a blanket condemnation of all wholesalers (I am not a wholesaler or connected with any of them) please consider the following points:

1. Yes, they obtain price quotes from the State and then resell their positions, basically. Can you do that yourself? Of course. BUT the pipeline is very long and very full, and you might not get a response to your price request for a year or two.

2. Some wholesalers have a pricing policy of $1,250 over redemption price for a tax certificate and $2,500 over redemption price for a tax deed. Depending on the property, that might be an acceptable amount of risk for a really cheap property. As real estate investors, we all have to balance risk vs. reward every day, all day long. This is nothing new.  Even with a price tag $5,000 or $10,000 over redemption price, if you know that going in and think the likelihood of redemption is extremely low, that might be an acceptable risk.  One must have enough knowledge to evaluate risk.  Your post will hopefully help people with that warning to gain more knowledge.