Important Things to Know About Arizona Property Tax Liens & MERs

Arizona is a property tax lien state, which means that individual investors can buy tax liens on delinquent properties. In the state of Arizona, property taxes take first priority of any liens. This makes tax lien investments safe and lucrative. Arizona tax liens can pay up to 16% return on your investment when the tax lien is repaid by the property owner. In some cases, the tax lien certificate holder can become the property owner. 

However, there are some important things to know about Arizona property tax liens and the system for recording mortgage servicing rights before you start investing in tax liens. We’ve put together a quick overview for everyone thinking about a potential tax lien investment.

Arizona Property Tax Lien Process

Property tax lien sales are governed by the county  that the property falls within. Each county in Arizona has slightly different processes with respect to tax lien sales. Maricopa county is the most populated county in Arizona and the tax lien process gives you a solid idea how the process generally works. The full Maricopa county tax lien tutorial is available online. 

Here are the most important steps:

1. Any properties with unpaid taxes at the end of December are considered delinquent.
2. Maricopa County publishes a list of all properties that will be included in the tax lien sale in January here: https://maricopa.arizonataxsale.com/.
3. The yearly tax lien sale takes place online in February.
4. All investors looking to purchase tax liens certificates must be registered with the county and must submit a deposit of 10% of their anticipated investment with a minimum of $500.
5. Once the property auction goes live, investors login to the site and place their bids on any tax liens certificates they want to purchase.
6. All winning bids are posted online shortly after bidding closes.
7. Full payment for the winning bids must be made via Automated Clearing House (ACH) only by February 9th at 5 pm MT.

Arizona Tax Lien Redemption and Foreclosure Process

After an investor wins the auction for a tax lien certificate, the property owner has three years to redeem the property with full payment of the tax lien plus interest to the certificate holder. Completing the redemption process will prevent foreclosure by the tax lien holder. A tax lien holder must wait at least three years from acquiring the certificate to initiate foreclosure, and they have up to 10 years to foreclose on the property.

The certificate holder must file a judicial foreclosure action to take ownership of the property. Potential tax lien investors should understand this will only happen in a small percentage of tax liens. 

In the vast majority of tax liens, the property owner, or another lien holder, completes the redemption process within the three year period. Before starting the foreclosure process, the tax lien holder must provide the property owner and any other lien holders with thirty days notice by certified mail of their intention to foreclose. The tax lien certificate holder can proceed with the foreclosure if the property owner does not complete redemption during that thirty day period.

Once the foreclosure action is filed, the tax lien holder must also notify all other parties that hold an interest in the property. Typically, this is the point where a lien holder on the property will redeem if the property owner does not. If no other lien holder redeems, the default judgment is generally an award of a Treasurer’s Deed to the tax lien certificate holder. Any other party redeeming the property will usually be responsible for all attorney’s fees and foreclosure costs, in addition to the tax lien and interest.

What is MERS and How it Impacts Property Tax Liens?

The Mortgage Electronic Registration Systems, Inc. (MERS) is a private company that created an electronic registry system that effectively tracks servicing and ownership rights of mortgages in the US. When a mortgage and promissory note are signed to complete the purchase of a residential property, MERS is added to the contract as a nominee of the mortgagee for the lender, and importantly, any successors or assigns in the mortgage.

In Delo vs GMAC Mortgage, LLC, the Arizona Court of Appeals confirmed that MERS must be notified by tax lien purchasers before they can foreclosure on the property. Delo purchased a tax lien in 2007 and only notified the original property owner and lender before filing the foreclosure action. While the lower courts sided with Delo, the Arizona Court of Appeals ruled that MERS should have been notified as their rights were retained throughout any sale or assignment of the mortgage. This is an important ruling for any tax lien certificate investors with respect to the notices required before a tax lien holder proceeds with a foreclosure on any property they hold the tax lien on.

Find an Arizona Real Estate Lawyer for Property Tax Liens 

Investing in Arizona property tax liens can provide safe and reliable returns to investors, but it is important to handle the entire process by the book. With differing processes by county and state laws requiring appropriate notices, any property tax lien investor should have an experienced Arizona real estate lawyer to assist them.

MacQueen & Gottlieb can represent Arizona tax lien investors throughout the entire process to avoid many common risks and maximize the potential return on your investment. Contact us today at 602-562-7218 to schedule an initial consultation or make an appointment online.