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* Payment is usually required at purchase or within a very short time afterward (often no more than 24-72 hours). Failure to pay the full amount results in all lien certificates purchased by the investor being cancelled, and may result in the investor being barred from future sales.
* In many states further actions must be taken to protect the lien holder's rights after purchase of a lien. Failure to comply exactly with these requirements may make the lien worthless.
* Tax liens on "choice" properties are quickly purchased by major institutional investors having sufficient time and resources to research valuable properties vs. worthless ones and who can afford the occasional poor choice; smaller liens usually involve properties that are generally worthless (such as odd strips of land). (In addition, Florida does not allow auctions or sales of tax liens of less than $100 on homesteads.) In "random" and "rotational" jurisdictions, investors have even less control over which liens they purchase.
* In "bid down the interest" jurisdictions, valuable properties are usually bid to the lowest rate possible greater than zero percent. (For example, Florida permits the interest rate to be bid down to a minuscule 0.25% – though it guarantees a minimum 5% return – while Arizona allows the bid to be as low as 1%.) Similarly, in "premium" states, valuable properties are bid up above the means of an average investor.
* Unlike a certificate of deposit, tax liens are illiquid. They cannot be "cashed in" (resold to the taxing authority), but must be held until either they are repaid or the holder takes action to foreclose. (It is possible, however, to assign one's interest in a tax lien to another party.)
* Some experts tout tax lien sales as a means of acquiring property at highly discounted prices. In practice, except for very rare instances all of liens of any value are redeemed well before the property can be foreclosed (especially where a mortgage is involved, as the mortgage holder is secondary in line to a tax lien), and where tax deed sales are used to foreclose, numerous bidders participate, thus making the chances of actual acquisition remote. For example, in one Illinois county with a population of over 500,000 the County Clerk's office said only 3 residential properties were not redeemed in 35 years.
* If someone is successful in attaining the deed to the property, the property might have environmental problems for which the new owner will be responsible. Depending upon the state, this could be very disadvantageous and the investor might have to pay a large amount of money to have the problem taken care of, or be fined daily until the problems are fixed.[1]
* There may also be other governmental liens (such as weed liens or demolition liens) that the investor must pay off when attaining title to the property. These are not part of the lien sale and remain even if the lien holder acquires the property.
* 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.
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