For as safe as tax liens are touted, there is a risk of loss, especially during the tax lien foreclosure stage. While Arizona Revised Statutes Section 42-18206 provides a remedy to collect attorney’s fees and costs that have been incurred by the tax lien investor, timely service of process of the tax lien foreclosure complaint is crucial.
For example, if an owner of property or an interested party (e.g., judgment holder, deed of trust holder) redeems the tax lien before being served, the tax lien holder will be left holding the bag on attorney’s fees and costs. However, if the redeeming person has already been served, that person is now responsible for the attorney’s fees and costs, and the investor’s attorney may then apply to the court for a judgment for fees and costs.
Once a judgment is obtained and recorded (with the appropriate information statement), collection of that judgment becomes a whole different process. Some investors opt to sit on the judgment, let it collect interest (current legal rate is 4.25%), and wait for a future payoff. Other investors opt for a more aggressive approach, which involves executing on the money judgment by forcing a Sheriff’s sale to sell the same property that was the subject of the tax lien foreclosure action. If the property is not a primary residence and the money judgment was properly recorded (with the appropriate information statement), the property may then be sold to satisfy the money judgment.
A Writ of Special Execution must be obtained and served on the redeeming party. The county Sheriff will then go through the process of setting up a Sheriff’s sale to sell the subject property. If the property is actually sold at a Sheriff’s sale, the owner has a six month statutory right of redemption to pay the fees and costs originally incurred in the tax lien foreclosure action, plus the fees and costs incurred during the Sheriff’s execution process.
I had a case in which the owner of a property was personally served with the tax lien foreclosure lawsuit and he then redeemed the tax lien. I sent a dunning letter for the fees and costs incurred by my client, but those fees and costs were not paid. I then applied for a judgment for fees and costs. I obtained a Final Judgment for fees and costs and recorded the Final Judgment. I then had the Sheriff set up a sale to execute on the money judgment. The owner did not pay the fees and costs (plus additional fees and costs of the sale) and the property was sold. Amazingly, the owner did not redeem the property during the six month statutory period, and the tax lien investor ended up with the very same property that was the subject of the tax lien foreclosure action – just by different means.
This all highlights just how crucial timely service of process in a tax lien foreclosure action is, as it ensures the ability to safeguard the investor.