For those unfamiliar with the tax lien process, delinquent real property taxes become a lien on an owner’s real property. To secure the payment of unpaid delinquent taxes, county treasurers sell tax liens, which are interest-bearing investments. See A.R.S. § 42-18101. Upon a tax lien sale (held in February of each year by each of the 15 Arizona counties) or an over-the-counter sale, the county treasurer of each county issues the purchaser a certificate of purchase, known as a tax lien certificate for a given year or multiple years.
Interestingly, certain counties require tax lien certificate purchasers to pay the aggregate amount of
all delinquent taxes, penalties, interest, and charges on the property for current and preceding years, including those encompassed by outstanding, still unredeemed, tax lien certificates held by other tax lien investors. However, not every county has the same policy. For example, in Maricopa County and Pima County (exercising their apparent leeway under A.R.S. §42-18104(C)), the county treasurers sell tax liens that encompass delinquencies for tax years not previously sold to private investors, but do not require the purchaser to also pay delinquencies for years encompassed by earlier tax lien certificates. Under this practice, separate purchasers in separate years may acquire competing tax lien certificates on the same parcel, which creates interesting situations in practice.
I just recently had a case in Pima County in which my client owned a 2004 tax lien and another investor owned tax liens for for 2005-2008. My client began the tax lien foreclosure proceeding in 2009 (three years after the tax lien was first made available for sale – 2006). However, in early 2010, the owner of the 2005-2008 tax liens also began its own tax lien foreclosure case for its 2005 tax lien. Under A.R.S. §42-18151(A)(3), any person who has a legal or equitable claim in the property, including a certificate of purchase of a different date may redeem a tax lien. Practically speaking, that meant in my case that either tax lien holder could redeem the other tax lien holder’s position out. In order to preserve my client’s priority lien position (2004 tax lien), he redeemed the other tax lien holder (the holder of the 2005-2008 tax liens).
The very real risk that my client now faces is the possibility that the owner of record or an interested party in the real property could redeem his tax lien, in which case he would be in the lurch for the amount that he just paid to redeem out the other tax lien holder. This case emphasizes the importance of taking advantage of the opportunity to pay subsequent year’s delinquent taxes, which essentially attach to the prior year’s tax lien. This avoids this scenario in which another tax lien investor is able to buy competing tax liens with the possibility of redeeming out an earlier tax lien holder.