Matterhorn Group FAQ
What are Tax Liens?
Property tax liens are government claims against property for unpaid taxes.
How do tax liens work?
Every state, territory & province in the United States and Canada allow local governments to file tax liens for unpaid property taxes due. As counties require property taxes to operate and pay for such items as roads, hospitals, police and sheriff’s officer’s and county schools almost all counties lien properties for unpaid taxes. Property tax lien auctions were created to enable local governments to fund their ongoing operations by auctioning these tax liens. About half the states around the country use these tax lien auctions to create revenue by facilitating strong investment opportunities to buy tax liens with low risks to the public. Strategic tax lien purchases at those auction on select properties can present strong interest rate returns and occasionally truly once in a lifetime types of purchasing opportunities.
What are the risks?
There are, potentially, several small risks which can be effectively reduced and mitigated with effective portfolio diversification management techniques and legal strategies so that other tax lien purchases counterbalance and stabilize the overall tax lien portfolio performance.
What are the biggest risks?
There are 3 common risks in Tax Lien/Deed Investing. The property owner can go bankrupt. This usually temporarily delays the foreclosure process by 30-60 days but, ultimately, you are able to foreclose and claim title to the underlying asset. The second risk is the potential destruction of the property improvements. If that happens, and you don’t have insurance, the value of the asset securing the transaction has dropped. However, as the original asset value was typically collateralized by 20 times the investment, and even though it has dropped in value, it is still typically worth several times what the investment was. So, not only is the investment protected, so, is a multiple of the profit.
The third potential risk to a tax lien investment is that it has an environmental problems that was not discovered after the tax lien was purchased. This can be and regularly is, an example where you may lose money. Typical environmental issues are not necessarily cheap to clean up and are often much more than your investment. However, this is where a portfolio approach pays dividends. You are not required to take title to this property and you do retain you interest if someone else decides to rehabilitate the property. They are required to pay you off to attain clean title to the property, including all penalties and interest.
Why haven’t I heard of this type of investment before?
No financial institution (Banks, thrifts, finance companies and/or credit unions) are allowed to sell them. Stockbrokers, mortgage loan officers, real estate brokers or any other type of broker don’t sell them. You will find them regularly in the portfolios if private equity investors, private wealth managers and bank’s private investment portfolio’s.
What about the economy? How is this investment effected by economic changes?
It’s a good question, particularly in light of the current economic environment. Tax liens are strong steady secured returns with low risks not strongly correlated with either the real estate market or the economy. They are secured with real estate assets that are worth 10-20 times their value. The typical tax lien costs about 2-3% of the total value of the underlying property. These investments have low entry costs and protected priority legal positions. Also, they don’t require property management, leveraged positions or rely on any particular economic trend to perform.
It says here you pay 8 to 12% depending on the transaction and how it is structured. What does that mean?
We usually structure the transaction so our investors are secured by the most protection. We have materials that we can give you a copy of so that your lawyer can review them on your behalf to ensure your interests are protected.