One of the primary goals of the NTLA is to educate investors and potential investors about the reality of how tax lien sales work. That includes expert, experienced insights into how to identify potentially lucrative investment opportunities, while learning how to avoid costly mistakes by detecting disguised pitfalls and recognizing tax lien falsehoods. Unfortunately, there are some big tax lien myths that can lead you astray, and they may be perpetrated by unscrupulous people willing to deceive you with false promises and tax lien myths – to market their get-rich-quick schemes. 

Top 5 Tax Lien Myths

The NTLA strives to expose such false claims about tax lien sales, and to provide you realistic, fully transparent, 100% factual information. This article describes five of the most pervasive myths, and debunks them to help you separate fact from fiction.

Myth #1

The government guarantees fixed rates of return on tax lien certificates that start as high as 18% but can go as high as 36% per year.

Myth-Buster Fact

The government makes no such claims or guarantees. The reality is that in most jurisdictions, tax lien certificates are awarded to the investor who is willing to accept the lowest interest rate, not the highest. As the auction bidding proceeds, competing bids drive that rate lower, not higher. For instance, historical data from 2012 reveals that the actual average winning bid rate at Florida tax lien sales was 2.37%. 

Of course in 2012, when interest rates across the board were historically low, 2.37% was still a healthy rate of return – which is evidence that tax lien investing can be profitable. To put that into perspective, Forbes reported that bank Certificates of Deposit were typically paying an average of 0.42% to 0.44% between 2010 and 2012. In 2013, rates for 6-month CDs fell below 0.15%, while 12-month CDs remained under 1.00%. So, while guarantees of super-high interest rates may be falsehoods, the potential to earn very competitive and attractive returns does exist for tax lien investors who understand how the process works, how to do their homework, and how to distinguish myth from fact.

Myth #2

Tax lien certificates are the safest way to acquire real estate for pennies on the dollar.

Myth-Buster Fact

Professional investors who purchase tax lien certificates are doing so in order to earn interest on the amount that the delinquent taxpayer owes the government. That’s their primary objective. They aren’t buying lien certificates in order to acquire real estate at an incredible discount of pennies on the dollar. Tax lien certificates do not give you the legal right to actually possess the real estate. Investors whose ultimate goal is to acquire real estate will typically invest in tax deeds instead, which are not the same as tax lien certificates. Even if you buy a tax deed at a tax sale auction, you may still need to take additional steps in order to gain an unencumbered warranty deed and clear title to the property, before you can legally take possession. 

Myth #3

You can invest in tax lien certificates safely from the comfort of your own home.

Myth-Buster Fact

Investing in tax lien certificates while sitting at home is not recommended – and could easily result in losing your investment capital and even incurring additional financial losses you didn’t anticipate. To manage and limit your financial risk as a tax lien investor, you will need to do your homework – or what investors refer to as “due diligence.” There are a wide range of factors that can have a negative impact on your investment, including situations where the underlying property has structural damage, environmental hazards, violates local building codes, is embroiled in a legal dispute or bankruptcy, or if the IRS has a claim against it that you could potentially inherit. If someone offers to sell you beachfront property in the middle of the desert, it pays to investigate before investing your hard-earned dollars. The same holds true if someone says that you make a fortune as a tax sale investor, without leaving home or doing the requisite legwork.

Due diligence isn’t a stay-at-home project, although it can be one of the most interesting aspects of tax lien investment. Do you have a curious mind, get bored doing the same old thing day-in, day-out, and enjoy the kind of financial pursuits that offer lots of variety? If so, tax lien investing may be the kind of personally and professionally rewarding career adventure you’ll not only be good at, but will love doing.

Myth #4

After tax lien sale auctions, local governments are often left with unsold tax lien certificates that represent incredible market value to investors who can purchase them at deep discounts for maximum profits.

Myth-Buster Fact

Lots of savvy, knowledgeable, highly experienced tax sale investors attend auctions, and the bidding can be fiercely competitive. Such sales even attract major institutional investors and hedge funds, who have done extensive due diligence. So if a tax lien didn’t sell at an auction because nobody was willing to bid on it, there’s probably a good reason why. Generally speaking, if tax certificates don’t sell at auction it’s because they represent little or no value. Maybe the underlying property is literally underwater after a flood, or is in the middle of an inaccessible tract of swamp land. Maybe there is an environmental issue connected to it that will be prohibitively expensive to remedy. Like a lot of things in life, if it sounds too good to be true it usually is. It is true that you can sometimes find some reasonably priced tax certificates that have some value - yet somehow didn’t sell at the auction. But those opportunities are rare. Anyone who tells you they are commonplace and are the low-hanging fruit that will be your golden apple is perpetrating a myth. Once again, do your homework to know exactly what you’re buying into when you invest.

Myth #5

You always get true, accurate information from late night tax sales investing infomercials on TV− and online workshops and courses that promise to teach you how to make a quick and easy fortune through tax sale investment.

Myth-Buster Fact

As you are well aware, there are lots of scams out there and you need to beware of anyone who says that tax sale investing is going to make you fabulously wealthy overnight. The fact is, many of those who perpetuate such myths and spread that kind of false information have little or no experience whatsoever with tax sale investing. Always investigate before investing your hard-earned dollars. Check out these so-called experts, and find out if they are members of respected tax sale industry organizations like the NTLA that adhere to the highest professional standards. Tax lien investing isn’t a get-rich-quick scheme. It requires knowledge, skill, due diligence, and investable funds. But that shouldn’t discourage you. The good news and truth of the matter is that there are lots of qualified and honest people and organizations, such as the NTLA, who provide excellent tax sales investing education and support. 

For More Information Contact the Nonprofit NTLA

For more information on tax lien investing facts visit NTLA.org. You’ll discover many value-adding resources to help you gain deeper knowledge of everything related to tax lien and deed sale investing. Those include NTLA University – recognized as the industry leader in high-quality tax lien and deed sales education. That’s also where you can sign up for NTLA University’s Master Tax Lien Investing and Servicing Class, for a comprehensive deep dive into everything you want to learn about tax lien investing to help ensure you thrive and succeed.