@Michael LeeMany IRA and solo 401k account holders invest their retirement funds directly in tax liens so it is also a good way to diversify your retirement funds.

I believe that the policy holder can borrow against it up to some percentage of the total benefit.

I am bidding on a property that is being foreclosed upon by the first lien holder, however the final judgement amount is 120k more than the assessed value ,and i like the property . i have a certain number in mind that i want to pay and it is obviously way lower, because i need to make a profit. 

Your IRA provider can help you with the actions to take to secure the tax advantages, but the choice of investment strategy and asset is made by the account holder and their real estate and/or financial team, whoever that may be. 

This may produce decent cash flow if the rate on the 1st is good and the 1st lien holder is willing to play ball.

Just my thoughts on the article:The article is a decent starting point, but it lacks much of the important details and is missing a very important means to locating private lenders - IRA owners (and 401k for that matter).Many of these IRA holders are soley invested in stocks, bonds and mutual funds which have been hammered over the last few years.

The promissory note would say John Smith and his wife Sally Smith together with Robert Jones and Rebeca Jones (H&W) together with Sam Allen and his wife Susan Allen, singularly and collectively, hereinafter as "Holder".....They can simply do a letter of agreement as to how they break up the contributions made between themselves.Now, are there pitfalls to this, yes but the question here is this a business enterprise between the three families or an arrangement to lend money for a one time event?

And I am offering a 10% finders fee at closing to whomever refers me to such a note holder!

The AO is telling you to talk to the bank because most likety this property is "under water"... meaning the note holder will need to approve a short sale for anything to realistically work.

The 2nd mtg holder wanted to do exactly what happened....send it to foreclosure and hope a couple of bidders who weren't sure of what they were doing, bid it up so they got a pay day...mission accomplished for them.