Are Tax Liens a Wise Investment in Arizona?

Once a year, Arizona’s fourteen counties issue tax lien certificates on real estate with delinquent property taxes. These certificates are first liens that attach to raw land, single-family and multi-family homes, mobile homes, factories and other types of property. But does the annual sixteen percent interest rate automatically make them a wise investment? Not necessarily.

Easy to Purchase

All Arizona counties hold their annual tax certificates sale in February. Maricopa and Coconino counties conduct their auctions online, making it easy for potential buyers who are not in the area to participate. Interested parties can conduct due diligence on the property appraiser’s and tax collector’s websites. In addition, most property appraiser websites have a mapping feature that allows users to zoom in and see the actual property securing the tax certificate before bidding. At the end of the auction, the unsold tax certificates are held by the county tax collector and can be purchased anytime.

High Interest Rate

Banks and other financial institutions can’t compete with the high interest rate Arizona tax certificates carry. They earn 16 percent simple interest that is prorated monthly. But the tax certificate owner can’t receive the accrued interest unless the property owner redeems the certificate, at which time the county tax collector will issue the certificate owner a check covering the initial purchase price plus the accrued monthly interest. For this reason, tax certificates would be an unsuitable investment for anyone looking to receive regular monthly or quarterly interest payments.

Right to Foreclosure

If the tax lien is not redeemed, the tax certificate owner must start a foreclosure action three years after the sale of a tax lien, but before ten years after the last day of the month in which the certificate was bought. The foreclosure action is filed in the superior court where the real estate is located, not where the property owner lives. Because foreclosure proceedings are complicated, tax certificate owners looking to foreclose may want to let an attorney handle the matter.

Lender Foreclosure

Sometimes, in addition to property taxes, homeowners do not make their mortgage payments. In this case, the lender has the right to initiate a foreclosure suit within the statutory time frame. Once the lender has taken back title to the property, they must issue a check for the original tax certificate purchase price along with any accrued pro-rated interest. The tax certificate is removed from the tax collector's list and retired.

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