Pub. 6 2016 Issue 1

“N O THING IS CERTAIN EXCEPT DEATH AND TAXES.” THAT HOARY EXPRESSION APPLIES with special force to Arizona real prop- erty taxes. Because those taxes are a senior priority lien on the real property, ahead of essentially all other liens in- cluding any mortgage/deed of trust liens securing loans, a lender’s failure to pay attention to the taxes can lead to the death of its lien. Property taxes are paid in arrears. The first half of the calendar year tax, from January 1 through June 30, is due on September 1 of that same year, and delinquent a month later, on October 1. The second half of that calendar year’s tax is due the following March 1, and delinquent two months later, on May 1. Unpaid taxes accrue interest at 16% per annum. If the taxes, interest, and the statutory penalty fees are not paid, the tax liens are sold in an open auction conducted by the County Treasurer dur- ing the second following February after the tax year. For example, taxes from the 2014 tax year were sold this past February of 2016. The auction process in Maricopa County and some other Arizona coun- ties is now entirely on-line. Some counties still retain a live auction. The auctions are always in February. The bidders are typically investors. Taxes not sold at that auction are “struck off to the state” and can be later purchased “over the counter” from the Treasurer. The auction is not a matter of bid- ding the price up, but rather bidding the interest rate down. The successful bid- der is the person who offers the lowest interest rate that must be paid to redeem the property from the tax sale, starting at 16%. The bids go down from there. Years ago, when there were fewer inves- tors, the interest rates would often settle out at 8-10%. But now, with so many interested investors, especially large funds bidding on blocks of tax liens, the winning interest rates have dropped to 2-4% for most tax liens. The successful bidder acquires what is called commonly called a Certificate of Purchase (CP). The winning bidder does not own the property, only the CP. After three years from the date of the tax sale, if the taxes are not redeemed by the owner of the property, a lienhold- er such as a secured lender, or the holder of a CP from a different tax year (yes, in some counties, there can be different parties holding different CPs from dif- ferent tax years on the same property), then the holder may file a lawsuit to foreclose all rights of redemption. The CP holder must successfully prosecute the tax lien foreclosure action, including naming the lender as a defendant, and then proceed to judgment. COUNSELOR’S CORNER Lenders: Beware of Real Estate Tax Liens By CHRISTOPHER M. MCNICHOL 8 www.azbankers.org