Real Estate Journal Online

One of the best things about tax lien investing is that it is one of the most secure forms of real estate investing. In fact, some “gurus” actually go so far as to call tax lien investing “guaranteed” investing. This is because a tax lien usually takes precedence over any other lien on a property, meaning that you are first in line to either get paid for your note or foreclose on the property. However, there are a few scenarios in which your “top dog” status may be challenged.

One such scenario occurs in states that reserve top lien status for their own liens. This is the case, for example, in Arizona. In Arizona, tax liens are considered to be “prior and superior to all other liens and encumbrances upon the property except liens and encumbrances held by the state.” This is not that big a deal as long as you are aware of the rule. Basically, if you purchase a tax lien on a property that is also encumbered by a state-owned lien, you are not first in line. You should check ahead of time to make sure that either:

1. There is not a state-owned lien on the property, or

2. There is enough value in the property to allow for collection of the state-owned lien and your lien. (In today’s real estate market, this second option can be risky since property values are very uncertain in many markets.)

Of course, every state has its own unique guidelines for how tax liens are dealt with. It is your responsibility as a tax lien or tax deed investor to make sure that you are prepared with all of the relevant information on state-specific guidelines before you bid on or purchase a tax lien or deed.

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