What are “Real Property Tax Liens”?
July 12, 2022
By Diane Drain Attorney & Retired Law Professor
When people fail to pay real property taxes on their homes, vacant land, and/or commercial buildings, Arizona law allows county governments to lien the real property for the unpaid taxes, effectively putting a mortgage on the property to pay the unpaid taxes. If the taxes are not paid within three years, the counties will sell the tax lien to investors at auction.
Arizona specifically, allows investors to purchase unpaid real property taxes from counties in the form of tax lien certificates on real property as an investment. Each year, counties hold auctions to sell unpaid property tax liens. Maricopa County, for example, holds its annual online auction in February. Some counties may have unsold tax lien certificates that they sell in addition to the auction.
An investor bids on the interest rate on the tax lien in the auction. According to Arizona law, an investor can earn up to 16 percent interest per year on a tax lien certificate. The bidder with the lowest interest rate bid wins the auction for each lien. If you are the successful bidder, you must pay the back taxes and obtain a tax lien certificate.
To redeem the tax lien certificate, the property owner must pay the taxes plus the 16 percent interest. The investor receives his investment plus the interest rate he bid at the auction, and the county receives the balance interest. If the property owner does not redeem the tax lien certificate within three years after purchase, the investor has the right to foreclose on the tax lien certificate by initiating a judicial foreclosure complaint.
More resources available below:
- 4QTKIDZ LLC, Blue Palo Servicing Co, and Cook Family Partnership, CV21-0065 (Az Supreme Court, 7/27/22) Under A.R.S. § 42-18202, lienholders must notify a property owner of their intent to foreclose before bringing an action to foreclose on the property owner’s right to redeem the lien. We must decide whether § 42-18202’s pre-litigation-notice requirement is satisfied upon delivery to the type of addresses specified in the statute, or whether a lienholder’s due diligence to obtain service of the notice is always required. Compelled by the statute’s text, context, and structure, we hold that delivery of a prelitigation notice to each of the three addresses referred to in subsections (A)(1)(a)–(c) is sufficient, even if the lienholder has reason to believe the property owner never received the notice.
- TFLTC v. Ford, (Az Supreme Court, 8-8-22) This case arises from five separate tax lien foreclosure actions, each brought pursuant to A.R.S. § 42-18201 and consolidated on appeal. We granted review to decide whether Leveraged Land Co. v. Hodges, 226 Ariz. 382 (2011), precludes all attorney fees and costs incurred after a redemption certificate has issued, including those fees and costs incurred as a direct and necessary result of completing that redemption. We hold reasonable fees and costs arising from redemption itself are recoverable even though those expenses were incurred after the redemption.
- The Maricopa County delinquent tax-lien sale was good news for the County Treasury, but bad news for investors, By Mike Fimea, Arizona Business Gazette, February 19, 2004, volume 124,
- Buying Tax Liens: Not Entirely a Gold Investment, By Christopher McNichol
- Daystar vs Maricopa County Treasurer (Az Ct App, Div One 5-6-04) good review of tax liens statutes and governing law.
About the Author: Diane Drain
Diane is a well respected Arizona bankruptcy and foreclosure attorney. As a retired law professor, she believes in offering everyone, not just her clients, advice about bankruptcy and Arizona foreclosure laws. Diane is also a mentor to hundreds of Arizona attorneys.
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