Real Estate Tax Liens
January 3, 2023
By Jeff Tallman, Managing Broker, HomeSmart
A Tax Lien is a legal claim against the property of an individual or business that fails to pay taxes owed to the government.
In Arizona, when owners fail to pay the taxes on their real property, the county in which the property is located has the authority to place a lien on that property for the unpaid amount of taxes owed. Property with a lien attached to it cannot be conveyed or refinanced until the taxes are paid, and the lien is removed. This is known as a “cloud on title” which is any encumbrance that puts a title to real property into question. Examples include foreclosure proceedings, liens on a property, probate, or fraudulent titles.
When a lien is issued, a tax lien certificate is created by the county that reflects the amount owed on the property, plus any interest or penalties due. These certificates are then auctioned off to the highest bidding investor.
In every state, after the sale of a tax lien, there is a redemption period (time varies depending on the state) where the owner of the property can redeem their property by paying their delinquent property taxes.
Delinquent Owners could eventually lose ownership of their property. Real property taxes are used by County’s to pay for public services, schools, libraries, roads, parks, and the like. The County Assessor’s Office determines Property Values while the County Treasurer’s Office collects the taxes with one half due October 1 of the current tax year, with the second half due the following March 1. The first half of the taxes become delinquent if not paid by 5:00pm on November 1 of the current tax year, and the second half become delinquent at 5:00pm on May 1 of the following year. By the following December, delinquent notices are sent to homeowners stating that a tax certificate will be auctioned on a specified date if the taxes are not paid. The Treasurer in every Arizona county prepares a list of the properties with delinquent taxes and publishes this list the following January or February. The tax certificate’s face amount consists of the sum of the following: delinquent real estate tax (may include previous years delinquent taxes, penalties, and costs), interest from the date of the delinquency, advertising penalty fee, a charge for the issuance of the tax certificate, and the “Taxpayer Information Fund” fee.
Tax certificates are a high priority lien against property which means there are very few other claims against a property which would be paid before the tax certificate lien. It can even supersede IRS liens. Property tax liens are superior to mortgages which are eliminated after a foreclosure action.
Tax certificate auctions are governed by Title 42, Chapter 18 of the Arizona Revised Statutes and must take place during the month of February. The county Treasurer publishes the delinquent tax list and the auction notice at least one time in a newspaper of general circulation in the county.
If the certificate is not redeemed within three years, the certificate holder has the right to foreclose on the property and take possession after taking all the proper steps in the Judicial Foreclosure process.
Interest ranges from 0 to 16% with the certificate going to the bidder willing to take the lowest interest rate. If the certificate is not sold, it becomes the property of the state and bears an interest rate of 16%.
When the owner redeems the certificate, they pay the delinquent taxes, interest, and assorted fees and costs. The following business day a redemption check is sent to the certificate holder which includes interest accrued beginning the first day of the month following the date of purchase of the certificate.
Maricopa County makes no representation that a property is usable or marketable.
If a certificate remains active for 10 years without redemption or foreclosure action, the lien will expire making the certificate null and void (worthless).
Fees imposed on the Certificates of Purchase offered at a Tax Sale are assessed by statute, and the property owner has a right to redeem the tax lien AT ANY TIME.