Property Tax Lien Foreclosures in Arizona

If you’ve purchased tax liens from a county treasurer in Arizona, you probably understand that you’ve made an investment that may result in the transfer of real property because of unpaid property taxes. Although investing in tax liens can be risky and speculative, and the process can take years, successfully foreclosing on a tax lien transfers the taxpayer’s real property to the investor, which can be sold at a profit. But the tax-lien foreclosure process can be difficult to navigate for anyone who does not understand the tax-lien laws and procedures. A wise investor’s best choice may be to retain an attorney to handle the lawsuit that forecloses on the property owner’s right of redemption. The following is a general overview of tax liens and the judicial foreclosure process, and it is not intended to cover every possible scenario. Your specific situation may vary from the description provided below.

INVESTING IN TAX LIEN CERTIFICATES OF PURCHASE

Unpaid Property Taxes and County Tax Liens

A tax lien is created when a property owner fails to pay the property taxes owed on his/her real property. In Arizona, each county has authority to collect taxes from the owners of real property within the county’s jurisdiction. By law, the county (through the county treasurer) becomes the holder of a tax lien against an owner’s real property for the amount of the unpaid property taxes.

Property owners have until June 1 each year to pay the assessed taxes. If not paid by June 1, the county treasurer is authorized to sell “certificates of purchase.” The cost of the certificate of purchase is the amount of the unpaid taxes owed by the property owner. By selling the certificate of purchase, the county receives funds equal to the unpaid property taxes, and the buyer (sometimes called the “certificate holder”) holds an interest in the tax lien. If the property owner redeems the property by paying the taxes he or she should have paid, the tax lien no longer exists, and the county reimburses the certificate holder the amount paid for the certificate.

Certificates of Purchase and Foreclosure Three Years After Issuance

The property owner can redeem the property at any time before foreclosure by paying the taxes he or she should have paid. If the property owner does not redeem the property, the certificate holder must wait at least three years before filing suit to foreclose on the tax lien. Three years after the date the certificate of purchase was issued, the certificate holder may start a judicial foreclosure process, but only if the certificate holder has purchased all other tax liens on the property. Foreclosing on the tax lien prevents the property owner from redeeming the property and may result in a treasurer’s deed transferring all right, title, and interest held by the county to the certificate holder.

Research the Property Before Buying a Certificate of Purchase

Many investors obtain a “litigation guarantee” or a property title search from a title company before buying a certificate of purchase. The litigation guarantee or title search will provide information on the recorded documents affecting title to the property and help to identify defects or “clouds” on the chain of title and other claims against the property. If clouds on title or other claims are identified before purchasing the certificate, the investor will have a better understanding of the risks of the investment and whether a quiet title action or other legal action will be necessary after foreclosure to clear the cloud on title. Again, purchasing tax liens and foreclosing the right of redemption can be speculative because the property owner can redeem the property at any time before (and sometimes after) foreclosure, and because defects in the chain of title may allow a prior owner to make a claim to ownership of the property.

Sales and Assignments of Certificates of Purchase

Certificates of purchase are often sold and assigned to others who want to foreclose on a tax lien. This market for the sale and assignment of certificates has developed because different certificate holders may hold tax liens on the same property for different tax years. So, a certificate holder may have a certificate for one tax year and may need to purchase the tax liens for tax years that are held by others. A certificate holder, however, can purchase the tax liens held by others on the same property, and by becoming the holder of all tax liens, the certificate holder can foreclose on the property.

PROPERTY TAX LIENS AND FORECLOSURE OF THE RIGHT OF REDEMPTION

A certificate holder cannot file a lawsuit to foreclose on the tax lien for at least three years after the date the certificate of purchase was issued. If the property owner does not pay the property taxes for the tax years after the certificate was issued, the certificate holder must purchase additional certificates of purchase and have the county treasurer endorse those purchases on the original certificate.

Filing a Foreclosure Action and Due Process

After at least three years have passed, the certificate holder must give notice of intent to foreclose by certified mail. Thirty days after the notice was sent, the certificate holder must file a lawsuit to foreclose on the property owner’s right to redeem the property. The lawsuit must name the “unknown heirs, devisees, and assignees” of the property owner and name the county treasurer as defendants.

During the lawsuit, due process can be an important consideration. Due process requires making all reasonable efforts to formally notify the defendants by serving a summons and copy of the complaint on the defendants. The purpose of serving the summons and complaint is to allow the defendants an opportunity to contest the lawsuit—or in a tax lien foreclosure, simply redeem the property by paying the property taxes. This emphasis on due process makes sense considering that the foreclosure may result in the transfer of valuable real estate to the certificate holder.

Seeking Default Judgment and Issuance of a Treasurer’s Deed

If the property owner does not answer the complaint or redeem the property, the certificate holder can seek a default judgment that forecloses the right to redeem the property. If all requirements for a default judgment are satisfied, the court will enter a judgment that orders the county treasurer to issue a treasurer’s deed transferring title to the property to the certificate holder. The county treasurer is entitled to a fee of $50.00 for issuance of the deed.

Finally, after the treasurer’s deed has been issued and recorded, the certificate holder (the new owner) will need to speak with a title company about title insurance, because title insurance will be necessary to sell the property. In some cases, the title company may not be willing to insure title unless several more years have passed after foreclosure and no claims have been made against the property.

Benefit of Using an Attorney for the Foreclosure Action

Many certificate holders find the lawsuit to foreclose the right of redemption difficult or intimidating, and it is possible that unexpected issues can arise during the lawsuit. The important thing to remember throughout this process is that, at any time before judgment is entered, the property owner can redeem the property by paying the taxes. In addition, the owner or the owner’s successor in interest can challenge the foreclosure or assert some claim to the property after the judgment is entered, and the risk of a successful challenge cannot be completely ruled out. Finally, as noted, if there any defects or clouds on title, a former owner or his or her successor could make a claim to ownership of the property. Because buying certificates of purchase involves risk, the purchaser must carefully evaluate each purchase.

CONCLUSION

If you need assistance with foreclosing on a property tax lien, we may be able to handle the legal proceedings for you. Generally, we limit our tax lien foreclosure cases to Maricopa County, but we will consider tax lien foreclosures in other counties. Our regular hourly rates will be charged for this work. If you’re interested in our services for a property tax lien foreclosure, please contact our office at (480) 997-2951 or through the Contact form on this website.