Checkbook Tax Liens & Deeds

Self-directed retirement accounts – Checkbook IRAs, Checkbook Solo 401(k) Plans, Checkbook QRPs, Checkbook HSAs, and  Checkbook DB Plans – can invest in tax certificates, tax liens, and tax deeds.

If you’d like to set-up a Tax Lien IRA, Tax Lien Solo 401k, Tax Lien QRP, Tax Lien Defined Benefit Plan, or Tax Lien HSA – this page provides the compliance information you need to do so.

Tax Certificate Investing 101

  • When property-owners are delinquent in paying their taxes – depending on state law – municipalities will obtain either a “tax lien” or a “tax deed” to ensure payment of those amounts.
  • Tax lien certificates & tax deeds have been steadily growing in popularity as alternative investments, producing superior returns that are safe and have a low correlation to the stock market.
  • Tax lien investing enables municipalities to function and enables those that are experiencing financial hardship to remain in their homes –  through your investment.

What is Tax Lien Investing?

  • Tax liens placed by municipalities are senior security interests in real estate that provide the right to claim property ahead of all other debt-holders, including banks.
  • Local governments, which depend on property taxes for their budget, place these liens to ensure they can continue to provide services to constituents.
  • Rather than immediate foreclosure and burdensome liquidation, taxing authorities obtain needed cash-flow by selling these tax liens to investors who “pay the taxes” and obtain secured rights to receive their principal – and up to 40% interest – from delinquent property-owners.
  • After a statutorily determined period has elapsed without payment investors may foreclose on the property, acquiring real estate at a fraction of its value.

What is Tax Deed Investing?

  • Tax deeds, while conceptually different than tax liens, present similar characteristics. They too are obtained by municipalities when property taxes are delinquent as a mechanism to obtain funding.
  • In contrast to tax liens which are security interests, tax deeds represent actual title to property.
  • To generate needed cash flow, townships sell these tax deeds to investors.
  • However, despite representing ownership interests, tax deeds often provide for a “redemption period” during which delinquent property-owners can pay tax-deed investors principal plus interest and reclaim properties. The result of redemption rules is that tax-deed and tax-lien investing may possess very similar characteristics.

Why Use A Checkbook Control Retirement Account?

  • Use your Checkbook Retirement Account to provide cash to local governments for continuity of services to constituents. The funding provided by tax certificate investors gives property-owners additional time to meet their obligations keep their properties.
  • Checkbook-control is crucial to tax-free and tax-deferred tax-certificate investing; you can’t participate in auctions without it.

Tax certificates can be bought at auctions or “over the counter.” Auctions may be held at townships or, increasingly, online. An alternative to bidding at auctions is buying over the counter (OTC), also known as assignment purchasing.

In all cases, municipalities require some form of immediate payment from investors – or the deal will go to someone else. Checkbook-control is an absolute necessity when you have to move quickly and the amount to be paid cannot be precisely determined well in advance.

Checkbook Tax-Certificate Compliance

  • The investor is the Checkbook Retirement Account. All paperwork and documentation are done in the name of the investing entity, which may be your IRA-LLC, Solo 401k, Solo 401k-LLC, QRP, or Defined Benefit Plan.
  • All expenses and revenue must flow through the Retirement Account. All investment-related expenses should be paid from retirement funds.
  • Be aware of state and local laws that impact tax certificates. Tax certificates are impacted by state and local law, which vary somewhat across jurisdictions.