Property Tax Lien Foreclosures – When a property owner in Arizona fails to pay property taxes levied against real property that are due and owing for a period of two years, the County Treasurer in each Arizona County sells to the general public what are known as “Certificates of Purchase,” or “CPs” in order to attempt to collect these past due taxes. Each county sells these CPs at a public auction once per year, although tax liens that do not sell at the annual auction can be purchased from a County Treasurer throughout the year. There is also a vibrant “secondary market” for Certificates of Purchase, where owners of CPs can sell a CP to a private party who may be interested in acquiring the CP. Arizona CPs are owned by thousands of individuals, companies, and institutions that are located in Arizona and throughout the United States.
Property Tax Lien Foreclosures
There are a number of advantages to investing in and purchasing CPs. A Certificate of Purchase entitles the buyer to earn up to 16% annual interest on the amount paid for the CP, and the CP provides the owner with a priority first lien on the particular property related to the CP, which is only subordinate to some limited possible state and federal income tax liens. Thus, after a buyer purchases a CP, the property cannot be sold with clear title to the property until the owner of the CP is paid the amount the owner of the CP paid for the CP, plus all accumulated interest.
The Foreclosure Process
Three years after a buyer has purchased a CP, the CP owner has the right to bring a foreclosure lawsuit against the owner of the property in order to compel the property owner or anyone else who has an interest in the property to pay the CP holder the full amount paid by the CP buyer for the CP, plus all accumulated interest, or lose their ownership or other interest they may have in the property (This payment is known as “redeeming” the CP). This process is governed by a strict statutory and legal procedure, which must be correctly complied with in every respect in order for the foreclosure action to proceed successfully.
Initially, the relevant statutes require the CP owner to send a 30 day Notice by Certified Mail to the property owner informing the property owner that unless the property owner pays the CP owner the full value of the CP, plus all accumulated interest, the CP holder will file a foreclosure action in Superior Court against the property owner to obtain ownership of the property. This Notice must contain specific information required by the relevant statutes, and if the Notice does not comply with all of the mandatory statutory requirements, the Notice is legally invalid, and any subsequent foreclosure lawsuit that the CP owner may file in Superior Court is subject to dismissal.
Attorneys with our firm have prepared these Notices and successfully filed more than 100 foreclosure lawsuits during the past 10 years. We have also defended owners of properties in foreclosure lawsuits when a CP owner attempting to foreclose against a property owner has not properly complied with all of the mandatory statutory and other legal requirements that must be satisfied by the CP owner attempting to pursue the foreclosure lawsuit.
Our firm charges a flat fee of only $125.00 (plus mailing costs) to prepare the required 30 day Notice and to ensure that it is in full compliance with all statutory requirements. In many cases, a property owner will pay the CP owner the value of the CP, plus all accumulated interest, within this 30 day period (i.e. “redeem” the CP), and no further involvement by attorneys is necessary.
If the owner does not redeem the CP within this 30 day period, the CP owner may then file a foreclosure lawsuit against the owner of the property to obtain ownership of the property. If the property owner or any other person with an interest in the property redeems the CP after the lawsuit is filed, and the owner or person has been served with the lawsuit by a process server, the person who redeems the CP must, in addition to paying the CP owner the entire value of the CP plus all accumulated interest, also pay the CP owner all of the CP owner’s reasonable attorney’s fees and costs that have been incurred by the CP owner in connection with bringing the foreclosure lawsuit. Thus, the CP owner who brought the lawsuit in these circumstances will owe not attorney’s fees or costs whatsoever to the attorneys who represented the CP owner in the lawsuit.
Our firm charges one of the lowest attorney’s fees in Arizona to initiate and conclude a foreclosure action in Superior Court. In most cases, this fee is $1,750.00, plus required costs. Costs include items such as the Superior Court filing fee of $316.00 and the cost for a licensed process server to serve the Summons and lawsuit upon the defendants. This cost will vary depending on how many defendants need to be served, and the difficulty in locating a particular defendant. In most cases, our firm will advance these costs on the client’s behalf and will wait for payment of attorney’s fees until the lawsuit is concluded.
A foreclosure lawsuit will end in one of two ways. If an owner or other person with an interest in the property redeems the CP after being served with the lawsuit, or ownership of the property changes hands after the lawsuit is filed, under Arizona law the person or entity who redeems must pay the CP owner’s reasonable attorney’s fees and costs. If the redeeming person or entity does not voluntarily agree to pay these attorney’s fees and costs, a Judgment is obtained against the redeeming person or entity for this amount, and our firm will pursue collection of the Judgment. In either event, the client who owns the subject CP upon which the foreclosure action was filed will never have to pay any fees or costs to this firm for the services we have provided.
If the owner of the property or another person or entity with an interest in the property does not redeem the subject CP after the lawsuit is filed and before Judgment is entered against the owner of the property, the owner of the CP will obtain a Treasurer’s Deed to the property, and become the deeded owner of the property at issue. In such an event, after the Treasurer’s Deed is issued, we will obtain from the client payment for the attorney’s fees and costs that our firm has advanced at that time. Although the client is then responsible for payment of our firm’s costs and attorney’s fees at this time, the client has also obtained full ownership of the property at issue, subject only to any other liens for unpaid property taxes that may still exist on the property, and, as stated above, in very rare circumstances some potentially unpaid federal or state income taxes owed by the previous owner. Thus, in either of the two potential ways, the foreclosure action is ultimately completed, it results in a “win-win” situation for the client who owns a CP and commences a foreclosure lawsuit.
Foreclosure lawsuits vary in the amount of time it takes to conclude the action after it is filed and served upon the defendants. If the owner of the property or another person or entity with an interest in the property redeems the CP owner as discussed above, usually the lawsuit can be concluded within 60-90 days, depending on how long it takes to locate and serve the defendants. In addition, if the owner of the property, or another person or entity with an interest in the property, chooses not to redeem the CP that is the subject of the lawsuit, the action can also often be concluded, and a Treasurer’s Deed to the property obtained for the client, within 60-90 days, again depending on how long it may take to locate and serve the defendants that have been named in the lawsuit. Some factors that can cause these time periods to take longer include whether a particular defendant is avoiding service of process, or for other reasons it becomes necessary to serve the lawsuit in a manner that does not involve personal service of process – such as service by publication, or obtaining an Order from the Court to permit service of the lawsuit in an alternative way – such as by mailing, posting the Summons and Complaint at the property, and other options available to the Court.
We will be happy to provide you with a free one-hour consultation to discuss any foreclosure lawsuit that you may be contemplating if you have been the owner of a CP for three years or more. It is also extremely important to remember that if you are the owner of a CP, Arizona Statutes provide that the CP expires 10 years after the Treasurer first offered the CP for sale, and you cannot bring a foreclosure action after that date. Therefore, if you have owned a CP for a number of years, it is prudent to arrange for a free consultation to ensure that you do not inadvertently lose the right to bring a foreclosure action.
Finally, if you are a defendant in a foreclosure lawsuit that has been brought against you, or have an interest in a property that is subject to a foreclosure lawsuit, whether as an owner or otherwise, we will also be happy to provide you with a free one hour consultation to determine if there may be defenses to the lawsuit, or methods to avoid paying the plaintiff’s attorney’s fees and costs if you should choose to redeem the CP that is the subject of the lawsuit. Often such defenses exist, such as if the plaintiff or his attorney have made certain legal errors when bringing the lawsuit, or is not entitled to recover from you attorney’s fees and costs for other legal reasons. If we believe there may be defenses available to such an action, we will advise you concerning such defenses. If you choose to retain our firm in such an instance, our hourly rate for attorney’s fees is $200.00 per hour, plus any out of pocket costs. We believe this is the lowest hourly rate charged by attorneys in Arizona who are highly experienced in tax lien litigation and lawsuits.
We sincerely hope that you will offer our firm the opportunity to assist you with diligent and effective legal representation for any property tax lien matters in which you or your company may have an interest.