Most homeowners pay their property taxes through their monthly mortgage payments. If this is the case, the mortgage lender pays the taxes on the property to the state as they become due. However, some homeowners are responsible for paying their property taxes directly, and if they fall behind on their tax obligations, a unique investment opportunity may result through the tax lien foreclosure process.
In Arizona, when a landowner doesn’t pay their property taxes for two or more years, a tax lien can be slapped on their property. These tax liens may then be sold to private investors at public auction. At the auction, the investors do not bid on the right to purchase the property itself. Instead, they are purchasing the right to own a tax lien (certificate of purchase or “CP”) in the amount of all taxes due. Bidders do not bid the amount that they wish to pay for the certificate; they bid the rate of interest that they are willing to accept as a return on their investment. So, for example, let’s say that there is a certificate worth $10,000, meaning that the property owner owes the state that amount in taxes. Investor A is willing to pay those back taxes today, but only if he can attempt to collect 16% interest (this is the maximum amount an investor is allowed to receive) on those taxes. Investor B, on the other hand, is willing to accept a return of half of that (8%). Assuming they are the only ones bidding on that certificate at auction, investor B will walk away with the certificate. Once a bidder has successfully purchased a certificate at auction, they may then try and realize some return on their investment.
The purchaser must hold on to the certificate for at least three years from the original date the certificate was offered for sale. If during this three year period the delinquent taxes plus interest are not paid, the purchaser may begin a judicial foreclosure action to satisfy the tax debt. The property owner can still keep their property by paying the full amount of the tax lien plus interest any time before the close of the foreclosure proceedings. However, if the taxes are not brought current before the foreclosure action is complete, then the owner of the tax lien obtains title to the property and becomes the property owner.
Please note that the preceding information is informational only, and it is not intended to be legal advice. The Tucson tax lien foreclosure attorneys at Harlow Spanier & Heckele can assist investors seeking to foreclose on tax lien certificates, or on most other legal matters for that matter. If you’d like to schedule a 30-minute consultation regarding tax lien foreclosure, please call (520) 495-0869 or e-mail [email protected] .
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