Succeeding at Investing in Property Tax Liens

Kristin E. Rosan

Partner, Madison & Rosan, LLP Attorneys at Law

As is typical with government programs, there is a very specific statutory process for buying, holding and then foreclosing on a property tax lien. Understanding what the law requires will allow you to capitalize on this little-known investment opportunity.

A tax lien is a lien on real estate for delinquent property taxes. Once a year, the treasurer for the county where the property is located auctions the lien to an investor. The investor can recoup their investment by payment from the property owner or foreclosure. In order for delinquent property taxes to be eligible for sale, the taxes must be at least at least three years delinquent.

This year 12,145 tax liens were sold in Maricopa County alone, at a value of $18,335,753 and average interest rate of 4.20%. Maricopa County is one of the largest lien auctions in the United States. The next tax lien sale will occur in February of 2019, with the parcels subject to the sale advertised in January of 2019.

The tax lien sales occur once a year. Anyone can participate in the auction, and because it is online you can bid from anywhere. Each tax lien is sold separately and is independent of other tax liens. Investors can research the list of liens to be sold to determine which will have the highest likelihood of repayment. Low value property and vacant land in the middle of the desert might not be as desirable as an occupied high dollar property.

In advance of the sale, interested bidders must register with the county treasurer’s office and submit a deposit. Unlike traditional bidding, where the highest bid wins, here the lowest bid wins. Specifically, the interest is bid down in 1% increments until the tax lien is sold. The maximum interest is 16% and the lowest is 0%. Keep in mind each county in Arizona has a non-recoverable fee that is deducted from any tax lien redemption. If the lien is redeemed by the owner in the first few months after sale, the fee could supersede the interest you earned. At the conclusion of the auction, the winning bidder will pay the balance due to the county on the tax lien.

As the owner of the tax lien, you are entitled to payment from the owner or the owner’s agent of the value of the tax lien plus the applicable interest rate (the one you bid). If the lien remains unpaid for 3 years from the date of the sale, you can foreclose the lien in a judicial sale. You may require the assistance of an attorney to formally file a foreclosure in court. In certain circumstances you can also recover your attorney’s fees and costs associated with the foreclosure. However, don’t delay. The tax lien expires after 10 years from the date of sale.

As with any investment, nothing is guaranteed. Taking the time to understand the process and learning to analyze properties will be good first steps in tax lien investing.