"I definitely want to invest in my own neighborhood," he said. Rodriguez works in New York City as a billing manager for the Mount Sinai Medical Center, he said in a telephone interview after the auction. He said he's attracted by the potential to acquire properties for less than 10 percent of their values, if the liens go to foreclosure.

"If you know what you're doing and you're buying properly it's a relatively safe investment and gives you an outsized yield, compared to what else would be available in the marketplace," said Albert Friedman, who manages about $60 million in a tax-lien fund for Boca Raton, Florida-based Alterna Capital Management, which bid at the West New York auction in December. "You have to be big enough to attend a number of auctions, buy a number of certificates and have people on the ground," Friedman said. He declined to comment on the fund's returns or redemptions policy, citing regulatory restrictions on advertising by private placements.

When institutional investors want to unload a lien prior to foreclosure they may sell it to a specialist such as Dan Friedman, managing member of Elmhurst, Illinois-based Optimum Asset Management LLC. In addition to managing about $15 million in liens on behalf of family offices and other investors, Friedman's firm sometimes negotiates directly with homeowners to come up with a payment plan, and in other cases forecloses and then resells the properties.

"We move a fairly high volume of foreclosure properties online," through the firm's store on the EBay Inc. website, which on Feb. 7 had two properties listed for sale, including a single-family home in Cleveland with a current bid of $920.

Investors considering putting money into a tax-lien private placement should take precautions to ensure they're not the victims of fraud, said Andrew Altfest, executive vice president of Altfest Personal Wealth Management, a New York-based investment adviser that manages about $800 million on behalf of individuals and families.

"You're investing with a private fund that's not going to have the same amount of regulation," as securities offered to the general public such as mutual funds, Altfest said. Investors should "make sure that the fund has a reputable auditor," and an administrator who signs off on every transaction, he said.

Investors should check the background of tax-lien fund managers with their state securities regulator before investing, said Jack E. Herstein, assistant director of the Nebraska Bureau of Securities.

Since 2008 at least six individuals have pleaded guilty to conspiring to rig bids at New Jersey and Maryland tax-lien auctions, according to press releases from the U.S. Department of Justice. The Justice Department continues to investigate the auctions, said Gina Talamona, a spokeswoman.

"At an open outcry auction there's always the possibility of three guys hunkered around the water cooler talking about what they're interested in," Westover said.

JPMorgan Chase & Co.'s Xspand unit received a subpoena as part of a Justice Department investigation in 2009, according to a prospectus for New York City tax-lien bonds serviced by the firm. The firm announced in July it would begin exiting the business. Jennifer Zuccarelli, a spokeswoman for the New York- based bank, declined to comment on the subpoenas.