Is It Important to Understand Tax Liens?
December 23, 2015
As we are all aware, virtually all property in the State of Arizona not owned by a government entity or charity is subject to a property tax. Interestingly, many people fail to pay their property taxes on a timely basis. When those taxes are not paid, the County sells the liens to interested investors to raise the funds necessary to provide governmental services.
Unpaid property taxes are sold every year by the County to the general public. This sale occurs each February for unpaid taxes of two years prior. For example, the February 2016 sale will be for unpaid 2014 taxes. The list of delinquent parcels will be available January 18, 2016.
Maricopa County operates an online auction referred to as a Dutch auction system. The price of the tax lien sold is preset. Auction participants bid down the interest rate they are willing to accept for the lien. The interest rate begins at 16% and decreases in increments of 1%. The successful bidder receives not only an investment accruing interest at the winning bid rate, but the opportunity to foreclose upon the property on which the tax is levied. Although few tax liens purchased result in ownership, a successful foreclosure can result in a windfall for the tax lien purchaser.
The attraction of tax liens as an investment is the priority over other liens. Regardless of when a lien arose, it is subordinate to the delinquent property tax lien. This is true for encumbrances such as deeds of trust, HOA liens, judgment liens, IRS lien, and mortgages. While these inferior lien holders must be served to foreclose their interest, a successful foreclosure removes virtually all clouds upon title. There are some exceptions to the priority rule.
Whether you intend to participate as a tax lien investor or not, having knowledge of the Arizona tax lien system will assist you with decision making when the issue of unpaid property taxes arise.
This year, the legislature substantially changed the tax lien system. There is now one set of rules for Maricopa County and another set for all other counties. With regard to tax liens in Maricopa County, liens sold prior to February, 2016, are governed by the previous statute and liens purchased in 2016 or thereafter, are governed by the new statute.
I have been a panelist for the Arizona School of Real Estate & Business Tax Lien Seminar in previous years and will also be a panelist this year. I look forward to providing you with more information and answering any questions at the seminar scheduled for January 29, 2016.