Risks Outcomes Tax Certificate Investing

Here are some tips on Risks Outcomes Tax Certificate investors frequently ask about. Knowing the risks and outcomes of any investment are key to successful investing.

Risks Outcomes Tax Certificate Risk: Property owners file for bankruptcy during the time in which you own the certificate.

Risks Outcomes TaxCertificate Outcome: Bankruptcy Trustees can reduce the interest earned and payable. In addition, the certificate payback periods can be expanded. Until such time as the bankruptcy is released, the tax lien is unenforceable, meaning that the tax certificate holder can not apply for a tax deed. If you can not apply for a tax deed and the certificate is held beyond the 7th anniversary of certificate issuance, your investment is lost.

Risks Outcomes Tax Certificate Risk: Government liens, actions and/or judgments are levied against the property during the time that you own the certificate.

Risks Outcomes Tax Certificate Note:Government is used here as jurisdictional governing body with the power to levy upon property, such as municipal, city/village/township, county, state, or federal. This type of lien is superior to a tax lien and will survive (can not be removed without satisfaction by payment or negotiation) after a tax deed sale. If there is a lien of this type on the property, you may wish to consult your attorney before taking action.

Risks Outcomes Tax Certificate Outcome 1 – Hold the certificate until it is redeemed (1) when the taxes are paid or (2) when the holder of another certificate on the property applies for the tax deed and redeems your outstanding certificate.

Risks Outcomes Tax Certificate Note: This is by far the least risky move. You can’t be sure that the property will sell at the tax deed auction. You don’t want to increase your liability by becoming the owner of the property. You also don’t want to increase your out-of-pocket costs as a result of taking the property to tax deed sale, including upwards of 2 years of taxes and application costs. Your wait will reduce your potential loss to out-of-pocket costs equal to the face amount of the certificate and unknown opportunity costs.

Risks Outcomes Tax Certificate Outcome 2 – Apply for the tax deed. Wait out the 2 year time requirement, apply for a tax deed and bring the property to tax deed sale. It may sell to someone with a interest in the property who is willing to assume the debt/superior lien. It might also sell to a novice investor. If the tax deed is not sold, do not take possession of the tax deed by accepting the conveyance without considering other options that may be available. By accepting the conveyance, you become responsible for the debt.

Risks Outcomes Tax Certificate Note: If you decide to apply for the tax deed, I recommend that you ask for answers to the questions below prior to making application. Although you may think that you know the answers, the county’s policies and procedures may have changed. The imperative questions to ask the Clerk of Court or the Tax Deed Office include:

• If no one bids at the tax deed sale, what is required to convey the tax deed to me as the certificate holder who has made application?
• What happens if I don’t fulfill the requirements?
• Will I have the option to re-auction the tax deed, if no one bids at the sale?

It has been my experience that if no one bids at the tax deed sale, the certificate holder has options to

• ask for the tax deed to be re-auctioned,


• take possession of the tax deed, or


• decide to revoke any interest in the property by informing the clerk of courts that the tax deed is unwanted or by ignoring the clerk’s written request to complete the transfer.

Without the applicable paperwork and transfer fees, the property will not be transferred to you and will be placed on the List of Lands Available for Taxes. As long as you don’t have the tax deed conveyed to you, the risk is limited to only those dollars you have invested to purchase the tax certificate and to bring the property to sale.

I personally would limit my potential loss by waiting for another investor to redeem my certificate or the owners to pay the taxes and fines. If neither happens, then my certificate would become void after 7 years.

The exception. If the properties value increased enough so that the lien constituted a small percentage of the properties value I would then apply for the tax deed.

Risks Outcomes Tax Certificate Risk: Property market value plunges during the time you hold the certificate.

Risks Outcomes Tax Certificate Outcome: If the property market value drops significantly in subsequent tax years, it may cost more to bring the property to tax deed sale than the property is worth. In this event, continue to hold the certificate in hopes of another investor redeeming your certificate. If you do apply for the tax deed and if there are no bidders at the tax deed sale, refuse conveyance of the tax deed as described above in my notes. You will lose your investment and the property will go onto the List of Lands Available for Taxes. What will be avoided is ownership in a derelict property, which if deemed uninhabitable by the county may cost thousands in repairs, demolition or fines.

Risks Outcomes Tax Certificate Note: While this situation is rare, I have seen cases where tax certificates were issued against residential dwellings, which were either damaged by a catastrophic event or reduced to a derelict or blighted property when all usable or sellable materials were removed prior to a bank foreclosure. In such cases, the cost to repair the dwelling may far exceed the market value of the property in the current condition.

Risks Outcomes Tax Certificate Risk: An error in the tax bill or certificate causes the certificate to be changed.

Risks Outcomes Tax Certificate Outcome: A tax certificate can be cancelled or changed if there was an error in the original tax bill or in the issuance of the tax certificate. The portion in error will be refunded to the certificate holder plus interest at the rate of 8% annually or the annual bid interest rate, if lower.

FYI-for additional risks outcomes tax certificate clarity see my certificate investor answers page.

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