When an owner of real property in Arizona fails to pay her real property taxes, the County Treasurer will offer to investors the opportunity to purchase a tax lien against the real property in the form of a Certificate of Purchase. The successful bidder for the tax lien pays the delinquent taxes, fees, and penalties, and then begins to earn interest on the tax lien at the interest rate bid at the auction or over the counter. Under Arizona law, at any time beginning three years after the sale of a tax lien, the tax lien holder may bring an action to foreclose the right to redeem.
A recent Arizona Court of Appeals Memorandum Decision (Span v. Maricopa County Treasurer) deals squarely with the issue of when a tax lien expires. However, this Decision is not binding and did not create legal precedent, as the Court of Appeals did not issue a formal written opinion. While not creating any legal precedent, the Decision does provide a potential glimpse into how a future court might rule on the issue of when a tax lien expires.
Span, the owner of the subject real property, argued that the tax lien against his property, which was purchased in 1995, had expired because the tax lien holder did not file a tax lien foreclosure action until 2007. Maricopa County argued that the tax lien had not expired, because the purchase of later delinquent taxes (“subtaxes”) tolled the ten-year expiration period. Span argued that the tax lien expired because the statute at issue in this case (Arizona Revised Statute Section 42-18208(A)) does not explicitly provide for tolling based on the purchase of subtaxes.
The only question before the Court of Appeals was when does a property tax lien expire under A.R.S. Section 42-18208(A). The Court of Appeals held that a tax lien expires ten years after its purchase regardless of whether a buyer later purchases the subsequent taxes on the same property, and the expiration date is not tolled accordingly.
Interestingly, prior to 2002, there was no time limit for a tax lien holder to foreclose on his tax lien. This resulted in a backlog of old tax liens on each of the fifteen Arizona counties’ tax rolls, and also created issues with income tax filings for tax lien holders. Consequently, the Arizona legislature later amended the law to include a ten-year statutory lifetime for tax liens purchased on or before August 31, 2002. The Court reasoned that it is clear from the legislative history and another statute that sets a ten-year expiration period (A.R.S. Section 42-18127) that the Legislature intended tax liens to expire after ten years, unless the purchaser begins a tax lien foreclosure action before that date.
The take away is pretty straightforward – if you do not begin a tax lien foreclosure action within ten years from the date the tax lien was purchased – your tax lien will expire. However, what is not so clear is whether a tax lien that is purchased over-the-counter (at an automatic 16% rate), but was offered for sale years earlier expires ten years from when it was first offered for sale or first purchased. The Pima County Treasurer, Beth Ford, takes the position that a tax lien expires ten years from when it is actually purchased. A future legislative amendment is in the works to clarify this very point. Who in their right mind would purchase a tax lien that was offered fifteen years ago knowing that the second they purchased it, it had expired?