Tax Liens & Tax Lien Foreclosures
January 2, 2020
Hogan School of Real Estate
In Arizona, if property taxes are not paid, the County Treasurer will sell the delinquent lien at public auction. People buy tax liens for two reasons: first, to obtain ownership of a property through foreclosing the lien; or second, to obtain a high rate of interest on the amount invested.
Statistically, most tax liens are redeemed by the owner. Only 1% – 2% of tax liens sold result in the bidder acquiring the property.
The main reason people buy tax liens is for investment – to get a relatively high-interest rate compared to investing in a certificate of deposit.
By law, Arizona property taxes have the highest lien priority. This makes tax lien investing very safe. Many people think that IRS liens have higher priority. In fact, IRS liens’ priority is based on the order recorded.
The interest rate paid to the county on delinquent taxes is 16%. When a lien is auctioned it is possible for the bidder to achieve that rate too. However, since the early 1990s CD interest rates have been low, and rates achieved by investors have been in the 4%-8% range.
The Tax Lien Auction
Each county Treasurer handles the tax lien auction a little differently. Some counties such as Maricopa County, Pinal County and Apache County hold their auctions online. Other counties such as Pima County and Cochise County hold live auctions. Either way, bidders are required to register with the Treasurer to obtain a bid number or open an account and provide a Social Security Number or other form of tax ID for Internal Revenue Service reporting purposes. A deposit may be required. To determine specific auction procedures bidders should check with each county treasurer directly or through their website. Whether online or live, the basics of the auction procedure are the same.
The Redemption Process
Arizona law gives the property owner a minimum of three years after the tax lien auction within which to redeem the property and prevent foreclosure. The CP (certificate of purchase) holder need not begin the foreclosure immediately after the three years but must begin the foreclosure action within 10 years from the date of the auction or the lien becomes invalid.
After three years from the date of the tax lien sale but no later than 10 years the CP holder may begin a judicial foreclosure action to obtain ownership of the property.
Prior to initiating the court action, the CP holder is required to give the property owner a minimum of thirty days’ notice by certified mail of the impending foreclosure. If the owner fails to redeem within that thirty-day period, the CP holder may begin the foreclosure action in Superior Court.
In most cases the CP holder will hire an attorney to conduct the lawsuit, but all the legal details will not be discussed here. Basically, once the papers are filed in court, the property owner and any other persons, such as a mortgage holder, having an interest in the property, must be given service of process. Once served, the CP holder has a certain amount of time within which to respond to the action.
In the end, either the property owner or subordinate lien holder redeems, or the judge orders in favor of the CP holder and directs the Treasurer to issue a Treasurer’s Deed to the CP holder.
If redemption occurs, the property owner is liable to the CP holder for foreclosure costs and attorney’s fees. Sometimes the redeeming owner will pay the attorney’s fees and costs at the same time redemption occurs.
But, if the owner redeems directly with the Treasurer, the Treasurer is not going to collect the attorney’s fees and costs. In this circumstance, the lawsuit would be amended to obtain a judgment against the owner for the unpaid fees and costs.
In conclusion, investing in tax liens can be a safe and high return investment. If you decide to get involved, please take time to learn as much as you can before taking the leap with your hard-earned money.