Checking for Tax Liens on a Property

Broaching the subject of tax liens and tax certificate sales initially, the purchaser ought to avoid the instance when a taxation authority has made the fundamental error of mistaking the title of the property. Therefore, the purchaser needs to conduct their own careful searches to check for tax liens on a property and to confirm that the delinquent taxpayer is in fact holder of title to the property. It would indeed be a sorry result for the holder of a lien to have as their only recourse, the opportunity for a tort action against the taxation authority for misfeance ; the negligent exercise of statutory powers.

Next, it is crucial that the buyer of a lien on property has knowledge of the property in detail.

It is certain that other astute lien investors will perform due diligence in researching their favored property lien investments, and what may seem like a bargain investment that happens to be leftover at tax lien sales, is often found to involve property that is encumbered by environmental restrictions or development constraints that would reduce its market value in any event. Here the delinquent taxpayer is likely to decline the redemption period within which the debt can be satisfied, and the holder of the lien will become the owner of a property unlikely to be sold or one that will be fortunate to recover the value of the lien .

Competing Creditors

A major consideration for tax lien buyers is the possibility of other holders of a lien against the property of the delinquent taxpayer.

Amid a foreclosure proceeding, mortgagees that have been deprived of notice of the lien against the property and other creditors may assert a right to the determination of the court .

In such a situation, it is important to conduct a preparatory search for mortgages on the property, and be well informed of the legal implications of a tax lien vis a vis other liens that may arise.

The worst scenario would involve a judicial ruling that the tax lien fails against that of others in higher priority, which, considering the very nature of buying tax certificates and liens is unlikely, nevertheless, is a real risk when the constitutional right to due process has not been adhered to by the lien holder, or tax authority.

The separation of the powers of the judiciary from the other facets of the legislature and the executive, are no more well characterized than in the invocation by the law of the doctrine of equitable relief. This essentially grants the delinquent taxpayer relief in the event of bankruptcy, and whether a corporate tax lien or a private tax lien, erodes the value of the investment itself, and serves as a nasty demise to the fundamental motivation to purchase a tax lien.

The most prestigious investing in tax lien certificates is often by professional investors in large parcels for an investment organization. They routinely possess the resources and skill to identify the most favorable properties, while leaving ones of less investment appeal to the individual investor. Hence, thorough investigation to all aspects of the investment is warranted, as there are many complex pitfalls of buying tax liens.

Lastly, due to the numerous State jurisdictions that each utilize their individual processes, some set the predetermined interest rate at low levels, others offer a higher rate, and sometimes the purchase price may be at a premium over the value of the tax debt, and the investor may be precluded from recovering the premium if the property is redeemed within the statutory limits applying.

Somerdin, Julia Potential Pitfalls of Tax Lien or Tax Deed Sales

Blay, Gibson & Richards Torts Law in Principle 4th Ed. Thompson Lawbook