What You Need to Know About Tax Liens

Chris Bianco

Owner/Broker, Weichert Realtors

Tax liens can be a very a tricky issue with questions of who pays the tax, can you buy them and if you buy them, can you foreclose? In this article is information that may help you understand some of the complexities of tax liens.

So, who pays them? In most situations where a loan is used to purchase the property from a traditional lender, the lender collects a prorated amount each month and pays the tax bill twice a year at the due date. Lenders will also collect a prorated amount of money and pay the homeowners insurance in order to protect their investment. This would be referred to as the “principal, interest, TAXES and insurance (P.I.T.I.) comprising the total monthly payment for the loan. This is required by the lender because the tax lien is ALWAYS in the #1 position and supersedes the loan in lien position. So to insure the taxes are paid, the lender collects the money monthly and pays it directly to the Treasury Department.

In a case where there is no loan or a non-traditional lender with different circumstances, it is the responsibility of the property owner to pay them. Keep in mind the property taxes are always the responsibility of the property owner regardless of whether the lender is collecting the money from the borrower and paying it, or the property owner is paying it directly to the Treasury Department.

Foreclosure: Yes, you can foreclose on a tax lien. Here’s how it works: Once someone becomes the winning bid on a tax lien sale they are issued a Certificate of Purchase (C of P). This insures the possessor that they own a debt that is secured by a piece of property. It is not a deed to the property, but rather a receipt that you own the debt and the debt is collateralized by the property. The property owner has 3 years to redeem the debt before foreclosure can take place. The owner must pay all delinquent taxes pertaining to that C of P as well as all interest and all fees related to the lien and delinquency.

If a foreclosure occurs, it is processed as a judicial foreclosure, meaning it is a civil action by the court system and a lawsuit is required. Keep in mind this can be lengthy and costly. The Treasury Department no longer issues the Treasury Deed, it will now be issued by the court system. Once the court finally issues the deed, only then do you have possession of the property.

Keep in mind that a court issued deed can be difficult to insure and you should always check with your title company to confirm that the deed is clean and marketable. Sometimes they might ask the deed holder to indemnify the title company issuing the title insurance against any redemptions that may occur. Additionally, always check with a title company before that title insurance will be issued on a judicial deed.

Buying tax liens can be profitable and can become a great investment. It can also become a bit of a hobby tracking them, searching for them, going to the auction, buying State C of P’s, and selling the C of P’s.

If you decide to try it and want more information on tax lien purchases and auctions go to the Maricopa County treasurer’s department website. You will find all the pertinent information that can help you along your path in Maricopa County. Be sure to visit the county-specific treasurer’s website to ensure you’re prepared for the tax lien auction held in that county.