Last “pitfall” listed on wiki-
“If the owner of the property declares bankruptcy, the bankruptcy court may lower the interest rate to be paid, or may discharge part or all of the lien, leaving the lien holder with nothing.”
Accurate?
Is this the only thing that scares you enough from taking the plunge?
As long as you consistently buy tax liens it’s not a matter if you will hit a wonderful jackpot it’s just a matter of when.
Yes a bankruptcy judge can adjust the interest on your lien. They probably have the power to discharge part of the lien. However I think especially in the second case this is rare.
I have bought perhaps 2-300 liens and I have never had a major issue with bankruptcy. There are other risks which are more common. In Baltimore City it is common for them to void a lien and you will get 4% interest instead of 18%. Also in the last year the city has taken months to send out redemption checks.
This statement is accurate the bankruptcy court has the right to lower the interest rate being paid by the homeowner. Additionally if the court decides that the homeowner cannot afford the home after the bankruptcy the court can discharge the tax lien in order to facilitate a swift sale in the future.
However, this is simply one of the risks involved in Tax Liens. Every investment has some level of risk. I wouldn’t necessarily call it a “Big Time" pitfall, as it is a rare occurrence.