The Security Behind Tax Liens

In most states, a tax lien becomes a senior lien to any other liens that may be on the property, even if a lender recorded the judgment first. In other words, if you held the certificate on a property that was never redeemed and then foreclosed the right to redemption, your tax lien takes priority over a judgment placed by a lender. The exception to this would be an IRS lien or a Bankruptcy lien against the property usually placed before the county tax lien.

There are factors that reduce the security of the investment. The method used in buying a tax certificate and the length of the redemption period are two of the major factors that reduce the security of the investment. One additional factor that reduces security in the tax certificate and reduces the actual yield is the status of the insurability of the title obtained through the tax lien foreclosure process. When a certificate holder obtains ownership of a property through foreclosing out the right to redemption, that person usually has to get a title which title insurance companies will insure. It is called insurable title. If a certificate holder is unable to obtain title insurance, it’s difficult to sell that property because mortgage lenders don’t like to loan money to people who want to buy property that has a tax lien attached to it. So, certificate investors have to file what’s called a quiet title lawsuit in order to have ownership of the deed. Of course this will take additional time and cost additional money, reducing your yield.