Fleishman Law’s Tax Lien Foreclosure Primer

If you own a home and dutifully pay your mortgage each month, chances are, you do not worry much about whether your property taxes are being paid. Hopefully, if your mortgage servicer is doing its job correctly, you have an impound or escrow account set up from which your servicer pays your property taxes and insurance. However, some property owners do not have impound accounts; therefore, they are responsible for the payment of their property taxes.

So what happens when a property owner stops paying their property taxes? In Arizona, like many states, once a property owner is delinquent in the payment of their property taxes, county treasurers sell tax liens to investors in the form of certificates of purchase.

Each year, county treasurers hold tax lien sales. In Arizona, the tax lien sale is held each February. There, investors bid on an interest rate that they are willing to accept for the tax lien. In Arizona, the highest rate that an investor can receive is 16.00% for a tax lien. Often, if the tax lien has great interest, investors bid down the rate, which may reach as low as 5-6%. The investor is not bidding on the property, but the right to own a tax lien against that property. The tax lien process ensures that counties continue to receive property tax payments to support the services they provide, and it also provides investors a solid rate of return or the opportunity to foreclose on a property in time.

In the absence of any future payments by the property owner, a tax lien affords the investor the opportunity to make property tax payments in the place of the property owner. The tax lien holder also continues to receive the same interest rate originally bid until such time as the tax lien is redeemed by the property owner or a foreclosure action is instituted.

To begin a judicial tax lien foreclosure, an investor must hold a tax lien certificate of purchase for a minimum of three years from the date of the original offering of the tax lien. By the time an investor begins a judicial foreclosure in Arizona, for example, five years of back taxes will have accrued.

The judicial foreclosure process is controlled by state statutes and is very specific in its provisions. Given that a property owner may be stripped of his ownership rights to a property, notice is always an important part of the tax lien foreclosure process. In order to ensure that proper notice is given, purchasing a litigation guarantee from a title company is important to get the most up to date information on the property owners.

Arizona requires that a statutory notice letter be sent to the owner of record according to the records on file with the county recorder. Once notice is provided and no redemption has occurred, the investor can file an action in superior court seeking to foreclose the right of the property owner to redeem the tax lien. A property owner can redeem any tax lien up to moment before a judgment is signed. The typical tax lien foreclosure can take close to a year to complete.

Once a successful tax lien foreclosure is complete and a court enters judgment foreclosing the right of the owner to redeem the tax lien, the county treasurer will issue a treasurer’s deed, which is recorded and gives the investor title to the property.

It is interesting to note land ownership in this country is conditional. While ownership of property is a concept firmly enshrined by our founding fathers, governments at all levels still have tremendous power to take that property from owners. While eminent domain is the most commonly known power given to governments to take property, the tax lien process ensures that if you choose not to pay your property taxes, you invariably will lose your property to someone willing to step in and pay your back taxes for you.