Ways to profit when others fall behind on their taxes

You may have seen those late-night TV infomercials “explaining” how to earn a fortune investing in unpaid property tax liens. This book discusses that tantalizing topic.

Earning yields of up to 50% on invested dollars isn’t as easy as those TV pitchmen imply.

Because each state has different laws, authors Chantal Howell Carey and Bill Carey explain, investors seeking profits in tax certificates and tax deeds must learn the procedures in the state where they want to invest.

In 25 states and the District of Columbia, when homeowners don’t pay their property taxes, investors can pay the unpaid taxes and receive a tax lien certificate or other security.

These liens can be redeemed by the defaulting property owners, who must pay investors the amount of property taxes paid to the county, plus hefty interest penalties.

“The statistics say only a very small percentage of property owners will let their good properties slip through their hands into yours through foreclosure of the tax lien. Typically, 95% to 98% of real estate tax liens will be redeemed by the [property] owner,” the authors report.

Banks, the Careys point out, often buy tax liens because of the safety and the high yield of the investments.

Occasionally, the owners don’t redeem their properties. Then the investor winds up owning the property free of any mortgages. The property can be sold at market value.

Because property tax liens have priority over mortgages and other liens, the Careys emphasize that when the owner doesn’t redeem, the lien holders of mortgages on other debt often will pay off the tax lien investor to avoid having their mortgage or other security wiped out.

The book provides superb research on how tax liens work in various states.

Still, there are many details lacking; each state and even local counties have differing lien sales procedures.

Most jurisdictions hold annual auctions. Some also offer liens for sale to investors over the counter and by mail. It’s up to investors to decide where they want to invest and to research the local tax lien acquisition procedures.

The Careys say maximum yields, depending on state law, range up to 46% if the lien is not promptly redeemed. But the authors imply that lower yields on invested dollars, such as 12%, are more normal.

They share investing strategies, such as buying before the tax lien sale from the defaulting owners, as well as how to encourage property owners to redeem tax liens so investors receive their high yield.

However, the authors give few examples of their own investing in tax liens.

About halfway through the book, the authors take a detour and explain real estate foreclosures. That’s an entirely different topic than investing in tax lien certificates. A step-by-step procedure for tax lien investors to follow would have been more helpful.

The book provides valuable but generalized information. Did I feel confident enough after reading the book to earn a fortune by purchasing tax liens? No. The book is a great starting point, but it is not a detailed how-to book.