There are other, little-known “fixed income” investments – attached to the real estate industry – available in the marketplace. These investments are “Liens” and are defined as a “legal claim against the property of another individual as security for payment of debt”.
Such liens fall into two major categories: consensual and non-consensual liens:
I. Consensual liens are imposed by a contract between the creditor and the debtor. For example:
- mortgages and private loans/mortgages;
- car loans;
- security interests;
- chattel mortgages;
- property improvements (mechanic's lien).
II. Nonconsensual liens typically arise by statute or by the operation of the common law. Those laws give a creditor the right to impose a lien on an item of real property or a chattel by the existence of the relationship of creditor and debtor. Examples of such liens are:
- tax liens, imposed to secure payment of a tax;
- "weed liens" and "demolition liens", assessed by the government to rectify a property from being a nuisance and public hazard;
- attorney's liens, against funds and documents to secure payment of fees;
- mechanic's liens, which secure payment for work done on property or land;
- judgment liens, imposed to secure payment of a judgment;
- maritime liens, imposed on ships by admiralty law.
While investment in all consensual and non-consensual liens are opportunities, we found non-consensual liens to be more attractive by definition.
As a result of our research, we have determined that concentrating on non-consensual liens tied to the real estate industry is the most advantageous starting point. The focus will be upon Tax Liens and Tax Deeds secured by the property on which the Lien is placed.
Tax Liens and Tax Deeds are a very good example of a “safe investment” since they provide little risk of investment capital loss, and return higher-than-other-securities yields over a planned period, with an automatic “exit” process.