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Tax Liens Promising 18% Returns May Be a Case of ‘Buyer Beware’

After Brian Finkelstein first heard about tax-lien investments three years ago, the former bond trader found the potential for 18 percent returns so compelling he jumped into the business full-time.

Like other investors, Finkelstein, chief executive of Broad Financial LLC in Monsey, New York, is hunting for yield as the Federal Reserve indicates it may keep interest rates “exceptionally low” through 2014. Yet high fees, illiquidity and a lack of transparency are a few of the pitfalls investors may encounter with private funds that buy claims to delinquent property taxes, said Alan Zafran, a partner with Luminous Capital.