Tax Liens, Notes, Paper, and Cash Flow Discussions

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Ryan Normand
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  • Arizona
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Can I purchase a property that has a tax lien on it?

Ryan Normand
  • Contractor
  • Arizona
Posted Jul 7 2022, 20:06

For the past month I've been communicating with the owner of a piece of vacant land in Gila County, AZ. The owner wants to get rid of the land and I want to buy it. The land has a tax lien on it, which I plan to pay off as soon as I purchase the property. The owner wants to do a quit claim deed, which I understand is risky, but it's a very small dollar amount so I'm ok with the extra risk in this instance. I've already verified the deed with the Gila County Recorder's office and done an MLS search - the person I am working with is the one and only owner and I already know about the lien, so I feel comfortable doing a quit claim.

But here comes the catch 22 - According to the Gila County Treasurer's Office, the current owner cannot sell the property to me before the tax lien is paid off. At the same time, I am not allowed to pay off the tax lien unless I have a vested interest in the property (i.e. until after the current owner has sold the property to me). Basically, I can't do A until I complete B, and I can't do B until I complete A. Aghhhhh...

Is there a way for me to purchase the property, record the new deed, and pay off the lien at the same time? Or am I going about this in the wrong order? Any advice is greatly appreciated.

Phoenix, Arizona

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Bruce Lynn
  • Real Estate Broker
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Bruce Lynn
  • Real Estate Broker
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Replied Jul 7 2022, 20:09

#1.  Don't use quit claim deeds.

#2.  Close at title and have title pay the lien at closing.  Very common and chances are you'll also get some prorated taxes from the seller at closing for 2022.

#3. Let the title company do a title search....chances are there was an owner before this one.  Also there can be other issues, IRS liens, marriages, divorces, other liens, etc.

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John Underwood#1 Short-Term & Vacation Rental Discussions Contributor
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John Underwood#1 Short-Term & Vacation Rental Discussions Contributor
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Replied Jul 8 2022, 04:28

They can't stop you from buying the property with  Quit Claim deed. Then pay the taxes. I have done just this many many times. I do my own deed and then record it. You need to know what your doing though. 

As long as you are comfortable with the risk and the dollar amount is low.

You can also get a title search to confirm there are no hidden problems.

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Chris Seveney
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Chris Seveney
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Replied Jul 8 2022, 16:15

@Ryan Normand

As John mentioned it can be done. If you pay him for the property and get the deed you should be able to go to the county and pay the taxes and record the deed. As mentioned it’s done all the time.

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Ned Carey
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Ned Carey
  • Investor
  • Baltimore, MD
ModeratorReplied Jul 8 2022, 20:49

@Ryan Normand normally in most real estate transactions, things go as @Bruce Lynn. But experienced investors like @John Underwood do creative deal like this all the time. 

     But here comes the catch 22 - According to the Gila County Treasurer's Office, the current owner cannot sell the property to me before the tax lien is paid off.

This is probably simply a miscommunication. I bet the county person meant you cannot record the deed without the tax lien being paid off.  You can certainly pay the owner get a deed and then pay the taxes when recording your new deed. If you have the kind of experience john and Bruce have, you can do this yourself.  But the fact you ask the question tells me you don't know the risks to look out for. 

You can weigh for yourself the risk of losing a small sum vs the cost of paying a professional to handle it for you. Me, I chose to pay a title company. My time is too valuable to do it myself. 

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Sergey A. Petrov
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Sergey A. Petrov
  • Real Estate Consultant
  • Seattle, WA
Replied Jul 8 2022, 22:00

Pay a title company to run the title. Be aware of other things that may not show up on title (environmental?). I am sure if I were to walk into the assessors office today and write a check for the unpaid taxes, they would take it without checking my ID and making sure the name on my ID matched the recorded owner name. One may not be “able” to happen before the other but they can certainly happen simultaneously. In a traditional sense, you can’t buy a house free and clear without paying off the mortgage and you don’t want to pay off the mortgage until you are the owner. That is the very nature of the closing process

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Ryan Normand
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  • Arizona
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Ryan Normand
  • Contractor
  • Arizona
Replied Jul 10 2022, 13:45

Thanks everyone for the responses. They have been very helpful. I have reached out to a title company and will definitely pay for them to do a title search before I buy the land. 

I'll post more updates here as the situation develops. 

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Don Konipol
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Don Konipol
  • Lender
  • The Woodlands, TX
Replied Jul 11 2022, 10:08
Quote from @Ryan Normand:

For the past month I've been communicating with the owner of a piece of vacant land in Gila County, AZ. The owner wants to get rid of the land and I want to buy it. The land has a tax lien on it, which I plan to pay off as soon as I purchase the property. The owner wants to do a quit claim deed, which I understand is risky, but it's a very small dollar amount so I'm ok with the extra risk in this instance. I've already verified the deed with the Gila County Recorder's office and done an MLS search - the person I am working with is the one and only owner and I already know about the lien, so I feel comfortable doing a quit claim.

But here comes the catch 22 - According to the Gila County Treasurer's Office, the current owner cannot sell the property to me before the tax lien is paid off. At the same time, I am not allowed to pay off the tax lien unless I have a vested interest in the property (i.e. until after the current owner has sold the property to me). Basically, I can't do A until I complete B, and I can't do B until I complete A. Aghhhhh...

Is there a way for me to purchase the property, record the new deed, and pay off the lien at the same time? Or am I going about this in the wrong order? Any advice is greatly appreciated.

You CAN buy property with any kind of liens, and you CAN record title.  You either misunderstood or the clerk you spoke to doesn’t understand real property law.  What you won’t be able to obtain is a title insurance policy without an exception for the tax lien, or with most major title insurers you won’t be able to obtain any policy at all.  

secondly, it would be VERY unusual for the county not to accept a tax payment from anyone except the title holder.  As a lender I pay property taxes and tax liens off all the time; the taxing authorities just want to be paid; they’re not picky about whose bank account the money comes out of. My best guess is that you were connected with one of those numerous lower level people who are happy to lend their expertise out even though their expertise is quite limited and often wrong.  

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Ted Thomas
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Ted Thomas
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Replied Jul 18 2022, 10:52

Interesting question. Contact a title company, explain that you are buying the property, ask them to prepare a contract, yes you will pay for that. In order to make sure the title is clear of liens pay the full amount of the lien plus the interest plus the purchase price and have the title company hold the money. The title company In turn will pay the tax lien, after they have received the deed they will hold it until the tax lien clears. Then they will give you the deed and they will give the property owner a check! I am not an attorney or a real estate broker. I am an author and publisher of tax lien and deed investor for over 30 years. Go to the title company and do what they tell you to do.

Respectfully,

Ted Thomas