Risks of Tax Liens

What are the risks of tax liens?
What could possibly go wrong with an investment involving paying a fraction of the cost for a home while collecting either a fixed penalty from the homeowner or possibly the property itself?
For those investors who do not do due diligence, they might find that they have paid good money for a worthless lien.
Before purchasing a tax lien, the wise investor will do a thorough title search on the property and also bankruptcy research. Creditors and the IRS can take priority over tax lien holders, especially in the case of bankruptcy.
That having been said, we should remember that financial institutions of various types have been investing in tax liens profitably for years, overcoming these very conditions. How? They utilize their resources to do proper title searches and property inspections. These companies obviously recognize the profit potential in tax liens, but also know they must cover their bases to ensure that each investment is a sound one.
Here are some dangers to be considered:
1. Tax lien certificates are generally issued with a lot number or legal
descriptions. Without checking things out, you have no of knowing whether
you have purchased a four-bedroom house or a hillside lot too steep to build
on. Physical inspections take time, energy, and sometimes money. This may
limit the investor to properties within a limited area.
2. Although tax liens generally take precedence over other types of liens, they
do not precede IRS liens or the action of bankruptcy liquidation.