Tax Lien Investment in AZ (Maricopa County)

13 Replies

Hello everyone!

I am looking for feedback on tax lien investing in AZ. I went on to the Maricopa County website and realize they have an auction coming up in February 2020. The site has already opened for registration and you can preview the sales. I looked at several properties and they seem to be occupied. I have several questions I'm hoping someone can help me with. 

How would we find out if they are occupied by owners or renters? Also, if they are renters, would we simply take over the rental income? There were some that were vacant. I know in some states (like AL) you are able to rent out the property as soon as you purchase the tax lien. Does anyone know if it is the same in AZ? I would appreciate any feedback before I make bidding decisions in Feb. I plan to start with low percentage bids just to get some hands-on experience but would appreciate any feedback. 

Thanks in advance! :)

Hello Laura,

I am not sure how you can verify occupied residence without maybe driving by. For the other questions...

I too was looking into tax liens in AZ. I am in Cochise County and had similar questions earlier this week. I recommend looking into AZ Title 42.

Arizona is a tax lien state not a tax deed state. Being a tax lien state, you are only paying off the taxes the property owner owes. That money goes to the County. You bid down the return starting at 16%, and the county awards the lien to the investor willing to take the least amount of APR on the purchased lien.

For example, a single family home in Chandler owes $6,000 in back taxes, interest and fees that is being auctioned this Feb. You bid $6,000 at 16%, I bid $6,000 at 15% and down it goes. Maricopa gets their $6,000 up front by you, the homeowner now owes you $6,000 at 4% (county collects the 12% difference when redeemed).

You only own a lien on the property now. You cannot recover your investment at the 4% rate until the homeowner sells, or refinances or whatever. You cannot force redemption until 3 additional years have passed since you purchased you tax lien, 2023. You then pay a lawyer to foreclose, and the property now goes to auction. The highest bidder gets the property, you get your $6,000 at 4% back unless you were the highest bidder.

Tax lien owners would put us at a higher priority of redemption over other liens like mortgages and second mortgages. But we are inferior to State Income and Federal Income tax liens on the property. You also run the risk of losing priority if another investor buys any future tax liens for auction on that same property.

Since you cannot redeem until 2023, the property owner may not pay taxes for those years as well. I will buy 2021's back taxes at $1,800 at 5%, someone else can do similar for 2022 and 2023. Potentially, if you do not secure your priority by purchasing all the subsequent liens, even forcing the APR down to 1% or 2%, you could run the risk of the property selling at foreclosure and not paying off your tax lien from three years ago.

Tax liens will require a good amount of liquid capital to be held for the purpose of foreclosing and winning your already "tax lien" owned property. You could run this on properties you really think will pay the liens off at the APR that is desirable for you. A lot of people are cycling their money like this.

Pima county has statistics for last few years of average APR 4-8%, only 40-70 people bidding, and 70million plus in tax liens purchased. Check out the statistics where you plan on bidding. Maricopa is online only, so there could also be more out-of-state investors. Pima and Cochise are in-person auctions.

Long winded, but I hope this answered your questions.

@Kyle W. Wow! Thank you for all of the information. I did understand how the bidding process works. However, I was not aware of all the intricate details, subsequent tax lien holders, etc. It sounds like this is too much work and risks, which I am not willing to take on as a starting investor. I would need my cash to be more fluid than what you have explained. Maybe when I have more cash and can afford to have it sit for 3 years at a possible >5% then I can come back to this idea. I appreciate your help! 

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@Kyle W. did a great summary for Arizona. I have been investing in tax liens in AZ since 2009. One point I want to ask Kyle - are you sure the property goes to auction after the 30 day foreclosure letter? That is not what has happened in my tax lien foreclosure cases. That is how they are done in Florida, but in AZ my experience, once the foreclosure actions is complete the lien holder who foreclosed gets the property. I have not done a foreclosure in Maricopa county, but I haven't found a statute that mentions after the foreclosure the parcel is auctioned to highest bidder. 

@Laura Tabarez  I apologize for my incorrect statement about foreclosure auction.

@Jerry K. You are correct. Foreclosure auction was the part that confused me the most in Arizona. After you brought this to my attention I did more research and was lucky enough to find Mohave County courts document on this.

They pretty much walk you through a Tax Lien Foreclosure when filed against a single property owner in Mohave County. I assume it will be similar for other counties and multiple owners but I personally will use a lawyer for that.

This clarification has made Tax Liens much more appealing. Thank you for this Jerry, and again I apologize for incorrect information.

@Dan Gauthier Since you are an attorney, could you clarify the above for me? Am I on the correct track in relations to tax lien purchasing and foreclosing? I tried to self study using as many resources as possible, but clarification from you would help a lot. I do not want to put out incorrect information again. Thanks

Originally posted by @Kyle W. :

@Dan Gauthier Since you are an attorney, could you clarify the above for me? Am I on the correct track in relations to tax lien purchasing and foreclosing? I tried to self study using as many resources as possible, but clarification from you would help a lot. I do not want to put out incorrect information again. Thanks

Sure. The tax lien foreclosure statutes are A.R.S. 42-18201-18208. It's a process set out by statute and a high-level summary of the foreclosure portion is: (1) starting 3 years from the date of the tax lien sale (but not more than 10 years) and after having sent the required notice, the holder can file a foreclosure action; (2) assuming the holder can show the tax lien sale properly occurred and there has been no prior redemption, the judge orders the county treasurer to issue a treasury deed in the holder's favor, subject to right to appeal. There is no auction-bid component.

Keep in mind that the lien can be redeemed by the owner or anyone with a property interest (including another lien holder) at any time prior to the judge entering judgment in the lawsuit. Hope this clarifies.

So buy a $1500 tax lien. Foreclose paying a few thousand(?) for legal fees. They pay the $1500 back prior to and you lose a lot of money and wait years to do it.

Is that really a possibility? Sounds potentially awful. 

Thanks Dan, but no, that wasn't it. Mohave County Treasurer posted it just as they were advertising the upcoming tax lien sale. I saw it on my phone, making a mental note to look at it once home on a bigger screen. I got to it within a couple days but they had taken it down. From what I read of it, it was proposing changed to the foreclosure process.

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@Scott Anderson I've bought tax liens in Arizona for years. I had one in Pinal county a few years back that I earned 16% interest for a few years and began foreclosure. After the foreclosure was started, the owner paid. He had to pay all of the principal, all of the interest and all of my attorney fees for the foreclosure up to that point. I had paid my lawyer $65 to do the 30 day "intent to foreclose" letter - that was not reimbursed - but all other costs were paid by the seller. I made a few thousand in interest at the 16% rate over the 3 year period.