Three years into a lien fund, the distributions arrive when they say they will, mostly
Income without a second job is the appeal of a lien fund over buying certificates directly, and a three year, $75k position with quarterly distributions is a useful case to study. How it plays out. Eleven of twelve quarters pay on schedule. Net return averages 7.4 percent across the three years. Fees run 2 percent management and 20 percent of profits over a 6 percent preferred return. Full return of capital arrives at the end of the term along with the final quarter. The quarter that doesn't pay is the part worth examining. Year two, third quarter, the fund sends a letter saying it's holding cash because a cluster of positions in one county went to foreclosure and the legal and carrying costs front-loaded. No distribution that quarter. An investor in that position has little recourse, since exiting early would mean finding a buyer for the interest, which a lock-up makes hard to do. Two quarters later the deeds sell and the money comes through with the shortfall made up. Had those parcels not sold, the next letter could have said something very different. What's worth keeping from a case like this: read the quarterly detail schedule instead of just the cover page. The detail shows the aging of unredeemed certificates, and watching that number creep up through year two is what lets a patient investor sit still through the missed quarter instead of panicking. The cover page just says "portfolio performing." Anything with a lock-up and a private offering is a document question first, and having an attorney read the agreement before signing is worth the cost every time.
