Arizona Property Tax Lien Primer

by

Mark L. Manoil, Esq.
Tiffany & Bosco, P.A.

Phoenix, Arizona
Revised 2002

Arizona Property Tax Lien Primer

Disclaimer
This publication is designed to provide accurate and authoritative information in regard
to the subject matter covered. It is provided with the understanding that the author is not,
simply by providing this information, engaged in rendering legal or accounting service.
If legal or other expert assistance is required, the services of a competent professional
person should be sought.

About the Author
Mark Manoil practices law in Phoenix with the law firm of Tiffany & Bosco, P.A. His
practice emphasizes property tax, real estate and business matters. He is the past-chair
of the Real Property Section of the State Bar of Arizona and the State Bar’s Internet
Committee, and a member of the board of directors of the National Tax Lien Association
(ntlainfo.org) . He is the author of Arizona Property Tax Liens: Guide to Profit, Protection
and Prosecution, published by Capital West Publishing, Inc., as well as other articles on
property tax and other real estate topics. For additional information, call (602) 255-6000,
or visit the Arizona Property Tax Lien Primer website at http://members.cox.net/manoil.
Tiffany & Bosco, P.A.
1850 North Central Avenue, Fifth Floor
Phoenix, Arizona 85004-4546
(602) 255-6000
URL: www.tblaw.com
email: mmanoil@azbar.org
© 1999, 2002 Mark L. Manoil, All Rights Reserved

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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Market Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4 5 5 6 6 II. . . . . . 8 Risks Associated with the Owner . . . . . . . 10 Litigation Expense . . . . Foreclosure . . . . . Internet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Due Diligence and Investment Criteria . . . . . . . . . . . 7 Property Risks . . 10 Uninsurable Title . . . . . . . . . . . . . . . . . . . . . 9 Other Liens . . . . . . . . . . . . . . . . . . . Due Diligence Depends on Investment Preference . . . . . . . . . . . . . . . . . . . . . . . 11 III. . . . . . . . . . . . . . . .Table of Contents I. . . . . . . . . . . . . . . . . . . . . Time as a Resource . . . . . . . . . . . . . . . . . . . . Investment Payoff . . . . . . 2002 Mark L. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A High Priority Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Arizona Property Tax Liens Order Form . . . . . . . . . All Rights Reserved 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Environmental Liability . . . . . . . . . . . 9 Administrative Inefficiency . . . . . . . . . . . . . . 9 Lien and Process Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Manoil. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sources of Property Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risks of Arizona Property Tax Lien Investing . . . . . . . . . . . 20 Email Subscription Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 12 13 13 13 14 14 14 15 15 15 IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Government Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pooled Investment Funds . . . . . . . . . . . . . . . . . 9 Liquidity . . . . . Research Tools . . . Bankruptcy Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Inadequate Security . How The Process Works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assessment information . . . . . What to Expect/Require of the Agent . . . . . . . . . . . . . . . . . 8 Owner's Bankruptcy . . . . . . . . . . . . . . Basics of the Arizona Property Tax Lien Sale Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 More About Arizona Property Tax Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Owner’s Military Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recorder's Office . . . . “Subtaxes” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 16 18 19 V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Alternative Forms of Tax Lien Investing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RTC and FDIC . 24 © 1999. . 10 Success . . . . . . . . . . . . . . . . . . .

Bidder numbers are assigned by the County Treasurer's Office prior to the sale. stock broker or real estate broker. if not paid. A lien for taxes attaches to the property as of January 1 of the tax year. The Notice indicates what assessed value the assessor intends to assign to the owner's property for the following year's tax roll. the Treasurer compiles a list of all the property upon which taxes are delinquent and then publishes the list the following January or February . How The Process Works The sale of tax liens is actually the culmination of the governmental tax assessment and collection process. when the County Board of Supervisors has set tax rates and when the county treasurer calculates and sends out the tax bills. even though the amount of taxes due will not be determined until the following August-September. (Under certain circumstances the tax bill may be paid in whole by December 31 without interest or penalties for missing the first half payment deadline. Most property owners are familiar with the Notice of Valuation that the county assessor sends out. By December of the year following the tax year. and occurs approximately three years after the process begins. is delinquent after November first. Unlike an auction where the bid price goes up. Each year the county treasurers of Arizona's counties offer for sale liens on the property of owners who have failed to pay their property taxes. becomes delinquent after the following May first.) If an owner is delinquent. The first half of the tax bill. and then interested buyers cry out their bidder numbers. The Notice is traditionally the kick-off for the tax appeal season. The bidding starts at sixteen percent.Arizona Property Tax Lien Primer I. the bidders yell out lower and lower interest rates for the amount of interest they are willing to receive on their investment.no more than three weeks nor less than two weeks prior to the sale . Arizona Statutes afford him or her several notices from the county treasurer of the delinquency and the impending sale. The sale is usually held in an auction format. The Treasurer's Office Auctioneer reads off the property's tax parcel number. The newspaper is required to publish the list on the Internet. The sale always occurs during the month of February. 4 . if not paid. You won't find this investment at your local bank. and the second half. if there is any tax payment delinquency. Basics of the Arizona Property Tax Lien Sale Process Sixteen percent interest on a fairly safe. The actual sale date is set by the local county treasurer. passive investment is nearly impossible to find.in an officially designated newspaper of the County.

The CP is like a promissory note. but because it arises from an involuntary obligation of the property owner. Manoil. Thus. The Certificate of Purchase is evidence of the debt from the property. The CP may be redeemed at any time up to the moment a judgment is entered foreclosing the right to redeem. and even IRS liens. The foreclosure action on the lien may not be commenced until three years after the date of the sale of the lien © 1999.Basics of the Process Upon payment of the back taxes. because taxes usually are only a fraction of the value of property. it is issued by the County Treasurer. the investor secures ownership of the property that the lien was on. All Rights Reserved 5 . It is not necessary to record the CP. and is not evidenced by any separate documentation to accompany the CP. Any liens not sold to investors at the auction are deemed sold to the State. Investment Payoff The CP investment pays off through redemption or foreclosure. penalties and charges. They automatically carry 16% interest. or other property tax and improvement district assessment liens on the same parcel. after the sale. deeds of trust. It is the practice of some county treasurers to require the purchaser of the most recent delinquent tax also “buy out” any prior year tax liens outstanding on the same parcel. the property tax lien is made senior to other liens on the property such as mortgages. it is hard to predict when the investment will be paid off. 2002 Mark L. Thus. A High Priority Lien By law. However. If the property owner or another interested party (including holders of other liens on the property) pays off the taxes ("redeems" the tax lien) the investor receives a return of the principal invested plus accumulated interest. Redemption. this makes the CP a very well-secured investment. and accordingly what the return on investment will be. the winning bidder will be issued a Certificate of Purchase ("CP") by the Treasurer's Office evidencing the sold tax lien. the statutory priority does not apply to other state liens such as mortgages held by the State. The priority lien on the real estate which secures the debt is created by operation of law. After the auction these CP's are available for purchase from the treasurer's office "on assignment" from the State. not the owner. If the CP is not redeemed and the owner succeeds in foreclosing the right of redemption of all interested parties. These purchases are treated like a redemption for the earlier year CP holder. judgment liens. but this is the practice by some county treasurers.

will not be subject to foreclosure until late February. Assuming the owner’s continuing delinquency. the failure to pay subtax may make the buyer’s investment vulnerable to an involuntary transfer to the next delinquent tax lien purchaser. Foreclosure As mentioned above. “Subtaxes” Normally the lien sold at the auction is for one year of delinquent taxes only. it is possible for the CP holder to pay those taxes and have them added to the CP and earn interest at the same rate as the initial CP. While the latter course is less expensive. in the event the CP is redeemed. for liens originally sold through 1998. and costs of the action. having them added to the lien represented by the CP. and the title to the property obtained as a result of the administrative foreclosure is not usually as insurable with title companies as is the deed resulting from a judicial foreclosure. This statutory protection enhances the attractiveness of the judicial foreclosure and removes a potential detraction from the investor's return on investment. therefore. Furthermore. Alternatively. the investor can then return to the treasurer’s office after June 1 of each succeeding year that the lien has not been redeemed or foreclosed. 6 . Arizona statutes provide that property owners who redeem their tax liens after having been served in the judicial foreclosure lawsuit are responsible for the investor's attorney's fees. the CP buyer at the February 2002 auction of liens for tax year 2000 may as early as June 2002 return to the treasurer's office to pay delinquent taxes from tax year 2001 on the same property and have those amounts endorsed onto the CP. Liens sold at the 2002 auction. the investor can wait two more years and foreclose the CP through an administrative action with the county treasurer's office. it does require waiting at least two additional years. Accordingly. The treasurer's office under statute is required to accept payment of the subsequent taxes after June 1 of any year by any holder of a CP on the property. If the county treasurer who has sold the tax lien is one who requires payment of earlier year liens as a condition of selling a tax lien. Such a suit will often require the use of an attorney. 2005. a lawsuit may be brought three years after the sale of the lien at the county auction to foreclose the CP. If the property owner fails to pay his or her taxes in subsequent years. and may pay the subsequent delinquent taxes.Arizona Property Tax Lien Primer at the public auction.

that leverage works well in favor of the tax lien investor. In other words. zoning. 2003. With a little bit of investigative effort. the land may be located in a flood plain where no flood insurance is available. there are some risks of CP investing which we will take up in the next section. the property may not be worth the amount of all delinquent taxes accumulated on it. and the overall legal and procedural system for handling and foreclosing the lien. property tax liens rank senior to first mortgages and judgment liens. II. there follows the broad risk of inadequate security for the obligation. liens first sold in 1999 and thereafter will have to be foreclosed judicially. or a conservation easement may prevent any meaningful exploitation of the property. Manoil. we address some of the many possible risks associated with this form of investment. 2002 Mark L. investors in property tax liens can achieve a healthy rate of return with significant upside potential. As most taxes are a small fraction of the value of the property on which they are levied.Risks of Tax Lien Investing Because legislative changes have provided that the administrative foreclosure process will not be available to the public after December. But there can be a dark side to CP investing too. while preserving the property owner's rights in the property against immediate or unfair deprivation. the nature and acts of the owner of the liened property. Risks of Arizona Property Tax Lien Investing Tax liens are perceived as a very safe and rewarding investment: They earn up to 16% simple interest and also have a very high priority lien position on real estate. This risk area encompasses all those issues affecting the liened property's inherent value. All Rights Reserved 7 . Property Risks Inadequate Security. Risks arise principally from three sources: the property which is subject to the lien. However. The Arizona tax lien sale process provides a mechanism for the state to collect its property tax revenues with minimal delay. if the lien investment goes all the way to foreclosure. Considering the investment as a loan secured by real estate. deed restrictions. the © 1999. and an example of the exercise of the State's police/tax power. For example. As a major source of revenue for schools and other local taxing districts. Here.

Risks Associated with the Owner Owner's Bankruptcy.000. However. and was thereafter informed by the Environmental Protection Agency that the property was contaminated and would need to be cleaned up. the EPA threatened the new owner with a $25. Estimated cost of cleanup: $600.Arizona Property Tax Lien Primer property itself may simply be a useless strip of land or easement. or the property may have once had improvements causing a valuation that is no longer justified because they were destroyed by fire. very real and imposing risk is that the property may be contaminated and its owner subject to environmental liability for cleanup. Although federal regulations have exempted lenders who end up taking title to protect their security interest. but the assessor allocates all the improvements value for the multiple-parcel economic unit to the subject.00 to $1. Several years ago a man in Kansas City bought a building for $380. it may just be easier to avoid this risk with a little pre-purchase research. an investor who forecloses on his CP investment may find his foreclosure attacked as a fraudulent conveyance under bankruptcy statutes. 8 .000. Similar to this last risk is the possibility that the parcel is one of several that compose a single economic unit. which could easily be extended to tax lien investors.000. In this case the tax lien investor would wind up as an unsecured priority creditor.00.00 in back taxes. Less drastic impositions by Bankruptcy Courts have included the reduction or removal of interest to be paid to the investor and extensions of time for making the payoff beyond the normal three year redemption period. requiring a return of the property to the bankruptcy trustee or debtor in possession with reinstatement of the lien as a claim in the estate. if the property owner files a Chapter 7 Bankruptcy or has a bankruptcy converted to Chapter 7 the investor could lose its entire investment. the bankruptcy trustee may have the tax lien subordinated (effectively extinguished) to administrative expenses in the estate. Environmental Liability. A property owner's bankruptcy filing looms large as another risk to the tax lien investor.000. and it is thus over assessed and over taxed. bankruptcy courts respect property tax liens and accord them high priority in the distribution or administration of an estate. In most cases. A current. left over from an eminent domain proceeding or faulty legal description in conveyance of property. Further. Under Chapter 7 statutes.00 per day fine if he failed to clean up the property. More frightening still.

Risks of Tax Lien Investing Owner’s Military Service. the treasurer's office is likely to take the position that no interest is earned and that the investor is simply entitled to the return of his or her investment. If the lien is mistakenly sold on government property which is usually exempt from taxation. the owner of the property encumbered by the lien has at least that much time to redeem the CP. as receiver or conservator for a failed financial institution. if at all. if the sale is the result of a mistake or wrongful act by the Treasurer because no tax was actually due. Government Property. All Rights Reserved 9 . From the investment point of view. The Federal Soldier’s and Sailor’s Civil Relief Act provides that limitations periods are suspended for persons in military service during the time of their service. foreclose that interest. it is difficult to predict when the lien will be redeemed.. the investor again is likely to see a reduction or absence of interest accruing on his investment. Federal tax liens enjoy the federal government's special 120 day right of redemption. the willingness of some investors to buy other’s tax liens may reduce this risk. Besides risks inherent in the property and associated with the owner. there are risks associated with the lien itself. there may be other State liens which have equal or better priority against the property subject to the tax lien. the Federal government then succeeds to the tax lien investor’s interest in the property. i. Given that the tax lien cannot be foreclosed for at least three years following the date of its sale. Recent legislation has also made clear that tax liens continue and are enforceable against property which is acquired by a governmental entity after the liens were imposed. Unless the investor has inside information about the property owner. This difficulty in predicting cash flows may be intolerable to some investors. even after the investor has successfully foreclosed on the tax lien. Lien and Process Risks Liquidity. the first risk is lack of liquidity. if lower. If the property owner is a soldier in military service it may be difficult to terminate his or her rights of redemption. Manoil. 2002 Mark L.e. While not always a solution. Under this right. the Federal government has 120 days from the date of judgment to pay the investor the amount of the lien plus attorneys' fees and costs and any amounts necessarily incurred for the maintenance of the property. even though we do have a statute that requires the Treasurer to pay 10% interest or the certificate rate. First of all. as well as a restriction against any © 1999. Other Liens. if the lien is sufficiently desirable. In doing so. until the military service is over. If the property is held by the Federal Deposit Insurance Corporation.

Arizona Property Tax Lien Primer foreclosure of the lien. Usually. Litigation Expense. For the same reason. In such a case. If contested. which may not be as much as the attorney has charged his client. If the investor fails to notify the treasurer's office of a change in address. Statutory "costs. if the judicial foreclosure avenue is chosen. the investor would be required to file a quiet title lawsuit to clear the title to the property in order to have the title insured. Under federal regulations. This could doubtless complicate and extend the time necessary to achieve foreclosure. may not cover all of the costs which the investor-client is obligated to pay the attorney. however. Administrative problems and inefficiencies can also reduce the investor's return. the court ultimately determines what fees are reasonable. The investor who decides to employ the administrative foreclosure route loses the use of his investment for two additional years. then that party is responsible for the foreclosing investor's attorney's fees and taxable costs. A decision from the Arizona Court of Appeals in July 1999 suggests that the tax lien may be invalid and unenforceable if it was sold at the time the Resolution Trust Corporation had an interest in the property – even if that interest was merely a mortgage lien originally held by a failed financial institution. if the CP is not promptly returned to the treasurer's office after receipt of the Notice of Redemption. the deed received as a result of the administrative foreclosure may not be deemed insurable by local title companies. in some counties the Treasurer's Office simply does not process the redemption quickly and thus substantial time may pass when the investor's money is not earning interest. Arizona statutes provide that if an interested party redeems the tax lien after having been served with process in a foreclosure lawsuit." which typically include filing fees and process server fees. the investor may fail to receive the Notice of Redemption and after redemption will no longer be earning any interest on the investment. Obtaining this permission may be close to impossible. the treasurer will effectively be holding the investor's money without paying interest on it. Moreover. FDIC’s permission to sue is generally required before any interest it holds may be subjected to foreclosure. Finally. A “paperless” certificate system adopted by some county treasurers’ offices in the last couple years has reduced this risk. As with any litigation there is also the risk of attorney's fees and costs. If the owner of the property is a minor or is incompetent. 10 As the . Uninsurable Title. Administrative Inefficiency. Arizona statutes require that the action be prosecuted against the disabled person through a guardian or a court-appointed guardian. the party redeeming a tax lien will settle with the investor's attorney for the amount additionally owed for attorney's fees and costs. And then there are the risks inherent to litigation.

2002 Mark L. III. he or she may become subject to subdivider requirements under State law. Investing for high interest return. If an investor succeeds in foreclosing on too many lots within one subdivision. happen rarely. which would cause the investor to lose principal. If the judicial foreclosure is handled properly. Contrast this to the retail marketplaces of stocks and bonds or real estate. Success A final risk is the risk of too much success. and possibly having to spend significant monies to provide basic services to the subdivision. or the research tools are not readily available. Fortunately. In these letter areas. And the bright side of this litany of risks in tax lien investing is that many of the risks are avoidable with research. we should acknowledge that the worst of these risks. Also. "Playing the numbers" (if I buy lots of liens.Due Diligence and Investment Criteria administrative foreclosure process will no longer be available to investors after December. Manoil. Due Diligence and Investment Criteria Arizona property tax lien investors will likely recognize themselves in one of three categories: 1. there should not be a problem getting title insurance afterward. The research tools are readily available. All Rights Reserved 11 . there are exemptions for certain bulk sales of lots which the investor might be able to take advantage of. research cannot have as enormous an impact in avoiding risk and ensuring reward as it does in the tax lien investment domain. enough will go to foreclosure so that I profit from their eventual sale). 2003. In the next section. liens sold in 1999 and afterward will have to be foreclosed judicially. a successful foreclosure of developed property may require property management time and attention. While this is a frightening list. This would include the requirement of preparation and filing of a public report in compliance with the Arizona Department of Real Estate Rules and Regulations. we provide a survey of "due diligence" resources to help the tax lien investor pick the right liens and avoid the bad liens. 3. Investing with the goal of foreclosure on the property subject to lien. 2. as well as additional fix-up capital. © 1999.

we examined some of the risk areas of property tax lien investing. and without considering redemption or foreclosure potential. liens more likely to be redeemed will be on properties that: are improved. Due Diligence Depends on Investment Preference Our shotgun-approach investor decides against investment of time (for research) in favor of investment of money with broadest coverage possible. Liens more likely not to be redeemed would be those where: The property has been abandoned. this is the throw-the-money-against-the-wall approach. have other liens (such as mortgages or deeds of trust) encumbering them. then. seeing what sticks in the form of foreclosed properties worth owning. Going back to the other currents of thought. you participate in the process simply for the prospect of earning a high interest rate of return on your investment. how much research should you do to at least minimally protect yourself and be fairly assured that the lien will be redeemed? In the previous section. other liens on the property. But if.g. and risks associated with administrative inefficiencies and the general costs of litigation. or the tax delinquency arises simply from a failure to send the tax bills to the correct address (e. Naturally. and the investor buying for lien foreclosure should identify and buy liens not likely to be redeemed. where the property changes hands shortly after the tax roll is finalized). but many can. Not all of these risks can be avoided through pre-purchase investigation ("due diligence").. By contrast. In other words. buyers consciously targeting liens that more likely will go to foreclosure look at more than the history of non-payment of property taxes on the parcels or the mailing address for tax bills. there is free and clear ownership (otherwise mortgage holders on property also have the right to redeem the lien to protect their interest). And reducing the possible risks enhances the potential return on investment. several years of taxes are delinquent. as a tax lien buyer.Arizona Property Tax Lien Primer Investors in the last group typically do not (or cannot afford the time to) thoroughly research the properties under the liens they will purchase. Those risks arise from problems with the real estate under the lien. 12 . or hoping for redemptions at high interest rates. bankruptcy of the property owner. the owner of record has died. and the tax bill mailing address for the property owner is outside the state. are owner-occupied or rented out. perhaps it is elementary to say the investor for interest return should look for parcels more likely to be redeemed.

The assessor's office has tax parcel maps which will help the investor visualize the location and dimensions of the tax lien parcel. Using the name. comparably valued properties of the two classes would have different tax burdens. buildings or other structures on the property. is developed commercial or industrial property or is a strip of real estate. depending on the use classification the assessor has assigned to the property. All Rights Reserved 13 . the following tools can be consulted to accomplish the chosen objectives and to avoid the tax lien risk areas: Assessment information. the following tools can be consulted to accomplish the objectives and to avoid the tax lien risk areas: A review of the assessed valuation would also indicate whether the assessor has assigned value to improvements. Research Tools After the investor has settled on a preferred approach. Unfortunately. For example. against the named owner. Nonetheless. Some investors form conclusions about likelihood of redemption based on whether the property is used as a personal residence. that is. Because the taxes on the residential property would be lower in relation to the property's market value.Due Diligence and Investment Criteria These are generalizations and there are exceptions to both profiles. After the investor has settled on the approach he or she wishes to take. Manoil. it is possible to do a lien search on that individual at the county recorder's office. the assessor's office will have information on neighboring parcels which may suggest what values and uses exist on properties comparable to the liened parcel. is raw land. they should help the investor determine investment goals and strategy. With the name of the property owner according to the assessor's records. names used on titles to real estate and thus the tax roll are not always identical to those used by government authorities when they record liens. the investor can determine if there are federal income tax liens or other liens. Other criteria often employed are examination of the tax bill to see if the listed property owner has an out-of-state address. 2002 Mark L. Finally. or whether the subject parcel is one of several that comprise a single economic unit. © 1999. because the assessment ratio for commercial property is 25% and the assessment ratio for residential property is 10%. Recorder's Office. the investor could conclude that tax lien investments in residential property are better leveraged than in commercial property. such as court judgments. A review of the assessment will also provide some indication of the tax lien leverage to property value.

Bankruptcy court jurisdiction is national. especially if the property is located in a subdivision or condominium complex. 1999) cast a shadow on the validity of tax liens against parcels where there is such a RTC or FDIC interest. where the owner is located. The automatic stay against tax lien foreclosure would be effective even if the owner is out of state and filed in a different district's court. and whether an engineer's water report is available. Otherwise. that would contain alot of useful information about the property. To address any potential or suspected environmental problems. and utility and water availability. The Arizona Department of Real Estate might have an existing Subdivision Public Report on the property. These could be double-checked if there is any concern a financial institution owner of property is in receivership or conservatorship. The name of any financial institution mortgage holder on the property could also be reviewed against the FDIC list of institutions. When the Resolution Trust Corporation officially went out of business its operations and interests were taken over by the Federal Deposit Insurance Corporation. Zoning of the property can be checked with the applicable town or county zoning authority.Arizona Property Tax Lien Primer The recorder's office will also have a copy of the vesting deed for the current owner. The engineering or health department might further have information of any percolation test results on the soil of the property. whether there are deed restrictions affecting the property. Also. Recent case law developments (July. the city or county highway (or streets) and engineering departments would be able to provide information on whether there is public roadway access to the property. Naturally. the investor should consider whether the property liened is something worth owning. whether the property is in a flood plain. the investor can call or travel to the office of Bankruptcy Court Clerk for the district in which the property is located and in the district. if different. The FDIC makes lists of properties it owns available in paper and electronic format. or at least adequate security for the back tax debt. Bankruptcy Court. 14 . RTC and FDIC. To investigate the potential bankruptcy risk. If document references are available in the vesting deed. although the expenses would probably be unwarranted given the preliminary nature of the due diligence. Sources of Property Information. including the nature and extent of improvements. a title search or report could be ordered from a title company to determine this information. It may be possible to tell from this deed. it will then be possible to double check those deed restrictions directly. the Arizona Department of Environmental Quality can be contacted.

These CPs become available for purchase over the counter from the treasurer's office. as well as other potentially relevant demographic information. A listing of such links is beyond the scope of this Primer. Data compilations in the census include reports on median home values in the tract.S. and carry a 16% simple interest rate. although some county treasurers may further restrict the sales period. Internet. Assuming one values the time invested in researching the lien. Government Document Depositories (at most large or university libraries) or through the Arizona Department of Economic Security. Census Bureau data. the lower the eventual rate of return. Deciding how much time can be devoted © 1999. Maybe identifying a tax book from which to buy is all the effort you wish to devote to identifying CP's for purchase. If the goal is successful lien foreclosure with minimum risk. Liens available for purchase this way ("on assignment") are sold shortly after the auction is completed until a week or two before the next one. by the investor's simply looking at neighboring parcels (if they are similar) and finding recent sales information. exhausting! Particularly if the investor is attempting to prepare for the auction sale.Due Diligence and Investment Criteria It is always best to visit the property in person to see if any other questions (or opportunities) associated with the investment come to mind. An indication of comparable values to that of the liened property might be available in the assessor's tax roll. well. This doesn't necessarily suggest the throw-the-money-against-the-wall approach is best. the more time spent looking at the property. but the reader is encouraged to explore Internet search engines for these resources. 2002 Mark L. the investor could also determine preferred geographic areas of investment (depending on his or her investment criteria) by consulting U.S. such as neighboring off-site conditions that might affect the value or use of the property. the diligent investor may choose to forego the opportunity to purchase at auction to take more time in investigating the liens left over after the sale. Many of th government offices and other sources of property-related information described above have made some or all of the records available over the Internet. Instead. Manoil. much of the time invested in doing this research will be lost if another bidder succeeds in buying the CP the investor is interested in. a tax book number might be enough. a pre-purchase review of the property securing the lien is warranted. Market Information. Besides contacting a real estate broker for the same information. however. All Rights Reserved 15 . Census data and tract maps are available at U. Time as a Resource Exhausting these due diligence sources could be. Buying in the center of town or on the edge.

one is relieved of the need for investigative effort. pooled investment vehicles and investor representatives/advisors have come into existence to serve just this market. although attracted by a potential 16% interest rate of return on the back tax lien investment. be it high interest return or property foreclosure.) While liquidity often remains a problem for the investor. and the tax lien investor is advised to investigate any agent thoroughly before entrusting money to that agent. The investor’s due diligence would be limited to reading the offering circular or other written materials offered by the fund manager and judging track record and prospects. However. but typically the investment is not tied to any specified asset (in our case. a membership interest in a limited liability company. or simply a promissory note. and chances of the pool funding CPs that actually go to foreclosure would go up. and his or her risk is diversified over many different lien purchases. The form of the investment may be a unit in a limited partnership. the risk of a loss in value due to any one of them becoming worthless would be less significant to the pool of investors as a whole.Arizona Property Tax Lien Primer to that process is part of the balancing of risks and benefits every investor in tax liens must make. Alternative Forms of Tax Lien Investing Some investors. any specified CP). there being a limited (or restricted) resale market for their investment units just as there is a limited secondary 16 . IV. Where the manager handles several pools. the investor might also question whether the ‘quality’ of liens purchased for each pool is comparable. Pooled Investment Funds Promoter-managers set up pools to raise a cash fund for investing. may be concerned about the investigation required to invest cautiously and securely their funds in CPs. ("Quality” would depend on the investor's preference. Please note that the author and the publisher of this article make no representations or warranties as to the safety or success of any investment made through the parties described in this article. These investors might be willing to sacrifice a portion of their return in exchange for management of their investment by other parties. By owning many CPs. and could affect the performance of the fund. the risks involved in tax lien investing (described earlier in this Primer). a trust certificate. Assuming the pool is competently managed. Accordingly. would still be present for the fund managers. the description of their services is made for illustration purposes only.

a shortage of cash reserves could make it difficult for the fund to pay subsequent taxes on purchased CP's. the positive side is that the pool will succeed at having its position cashed out and will have the opportunity to reinvest the full proceeds. thus enjoying possible compounding of its interest rate of return. zoning information. the problem could be compounded if the fund earns interest income which is passed through for tax liability purposes to the investment holder. Other strengths that the investment manager can offer are better research and property evaluation tools. © 1999. that the CP investment will be cashed out and sold to another. aerial photographs. in some counties. if the pool’s lien has not already been transferred on the treasurer’s books to the later purchaser (thus. ERISA regulations may complicate matters substantially by imposing ERISA fiduciary responsibilities on the managers of the investment fund if they have any profits or equity interest in the fund. if the lien is purchased by another CP buyer. In the last case. even though fund managers suggest that tax liens will be redeemed on the average of 18 months after their purchase. This aspect of any offering should be brought to the attention of the investor's financial and legal advisors. Subsequent taxes are not paid at all. An additional capital call could be required of investors. Also. All Rights Reserved 17 . This creates the likelihood that the subsequent delinquent tax will be sold at the next auction as a separate CP. decreasing the chances of the pool’s lien going to deed). Busy professionals might wish to invest ERISA funds in a pool vehicle. Subsequent taxes are not paid as soon as possible. This cash management problem could manifest itself in several ways: 1. or. Manoil. flood insurance rate maps. and other information sources too expensive for the occasional investor to acquire. without actual cash distribution. 3. that party will have a right to redeem the pool’s lien. It is not uncommon for such pools to have research tools such as an electronic/computerized database with the Assessor's roll. 2. creating the risk that a holder of a CP from a different year may pay "subtaxes" first. In those Arizona counties where the treasurer forces an assignment to the subsequent tax lien purchaser of the pool’s earlier CP. 2002 Mark L.Alternative Forms of Tax Lien Investing market for tax liens. However.

the trustee has no equity or profits interest in the performance of the trust. Interestingly.handling redemptions. may want to consider hiring an investment advisor. some of the companies and professionals acting in the role of investment advisor have found it administratively less burdensome to keep investors' interests segregated. and securitized in the form of private placements. without undertaking time-consuming due diligence. upon the investor's showing of qualification under securities regulations. reinvesting. Advisors often charge clients an up-front annual management fee based on a percentage of the amount being managed. Typically. or is the pool simply investing with a view toward eventual foreclosure of the liened properties. To avoid or minimize ERISA concerns. This result follows a frequent marketing message to investors centered around CPs’ high interest rates. In contrast to pooled investment vehicles. the pool is able to meet most unit-holders’ needs. In evaluating an investment pool.000. advisors usually accept clients only if they meet an investment threshold. The advisor carries out the research function and administers the CP investment for the investor -.Arizona Property Tax Lien Primer The manager of one firm that has set up several private placements and other managed-investment vehicles for passive investors in tax liens explains that the cash pools it organizes are usually set up as investor/grantor trusts.000. To address the potential liquidity problem. the participation of investment pools in tax lien auctions during the 1990's has made the bidding for liens more competitive and consequently the CP interest rates are often lower. Tax reporting is on a pass-through basis (like trust or partnership reporting). and account to investors with respect to their specific. unit holders may choose from several reinvestment/cash distribution plans and can liquidate their unit if cash is available. or notifying the investor of subsequent tax amounts for payment. In these cases the minimum investment has been $20. Based on historical experience of an approximate 5% cash flow on the pool each month from redemptions. determine whether there are any strict criteria about CP interest rates. if not all of the research tools that the pooled funds use. the advisor maintains or has available most. Offers of participation in any of the pools can only be made through a private offering memorandum. that is. individual investments. Investment Advisors The investor who prefers to see which liens she has bought. Similar to the investment pools. 18 . does the pool refrain from buying if the bid rate drops below a certain point.00 per unit.00 to $30. and to pay subsequent taxes when deemed strategically wise to do so.

however. Well-equipped real estate offices have much of the real property information necessary to conduct thorough due diligence. No less a due diligence effort should be made. Due diligence requirements for prudent investing. 2002 Mark L. however. in choosing the investment vehicle or advisor. suggests one broker. may make the investment prohibitively expensive to a professional or other investor whose time is limited. the investor is entitled to the protections of the federal Securities Act and Securities Exchange Act. in any form. Reports should also provide regular statements of the pool’s CP portfolio. the pooled investment vehicle. including tax parcel identification information and dates the liens become mature for foreclosure.Alternative Forms of Tax Lien Investing Another source of tax lien investment advice. Because such an arrangement probably constitutes the sale of securities. although often requiring a substantial minimum cash investment. In the latter case. concerning the investor’s portfolio or the pooled fund in which he has participated. In pooled investment situations the report should indicate performance through amounts received on redemptions and sales of foreclosed property. All Rights Reserved 19 . these approaches do remove the time-cost of participation that many investors may be concerned about. What to Expect/Require of the Agent The investor entrusting monies to an investment agent. or hiring an investment manager. which may require additional disclosures. being compensated on the basis of the investment’s performance. While there is no guarantee of return or other success associated with managed CP investments. depends on whether the advisor requires payment in the form of an up-front fee on assets managed or on the back-end. Those working with investment advisors/managers should know explicitly what liens they have in portfolio. An agent who keeps his client in the dark about any of the particulars of the client’s investment is not a satisfactory agent or fiduciary. and brokers often bring a good sense of market values for the properties upon which they suggest CPs be bought. and similar state laws. should receive at least quarterly reports. if not monthly. is the knowledgeable real estate broker. and perhaps management. more principal is at work and thus ultimate returns can be higher. © 1999. Thus. Manoil. A big difference in return on investment. is an option worth consideration for those unable to scrutinize closely and continually the status of their tax lien portfolios. Tax lien investing offers an exciting opportunity for high rates of return. breaking out the age of the CPs held in it.

Please consider signing up for our free email alerts and announcements on the form that follows. At the Arizona Property Tax Lien Primer website (http://members. and significant research or good luck to make it work.for reducing the ultimate cost and time to foreclose or realize redemption. This can be done by monitoring legislative amendments to the tax statutes and reading new case law and legal treatises as they are published. The process requires active and on-going involvement with government offices. 20 . The Internet provides access to much of this material and other means for learning about the tax lien investment process in Arizona and elsewhere. but it can also be fraught with risk.net/manoil) we are committed to bringing current information about this area to the tax lien investor community.Arizona Property Tax Lien Primer V. it is critical for the investor to stay abreast of legal developments in the courts and in the legislature. Because the investment is so dependent on the state of the law that provides the opportunity. Attorneys skilled in the foreclosure of tax liens are an invaluable part of the equation . Conclusion The Arizona property tax lien investment opportunity can be a valuable and attractive one.cox. Professional advisors are available to help in both areas. as well as of the properties in which the investment is made. this one requires detailed knowledge of a relatively esoteric area of law. As investments go.

if in Arizona Daytime phone Fax number Email address How did you find the Arizona Property Tax Lien Primer website? (Please check all that apply. Note: you may also sign up as part of your order if you are purchasing Arizona Property Tax Liens – Guide to Profit. G Through a linked website. G Saw advertisement.) G Saw a printed copy of the Primer. G Government office referral. Manoil. Please fill out this form and fax it to Mark Manoil at 602/255-0103. All Rights Reserved 21 . G Other: © 1999. G Through a Web search engine. Name Company Address Line 1 Address Line 2 City State Zip Code County. Protection and Prosecution (see order form on page 24). 2002 Mark L.Email Subscription Form Sign me up to receive email alerts and announcements about Arizona property tax liens.

Protection and Prosecution.. Phoenix real estate attorney Mark Manoil’s new book represents more than ten years of practical and legal lessons learned about investing in and foreclosing Arizona property tax liens. Capital West Publishing. June. the investors’ research and decision-making tools. profiles of profitable investing techniques.g.Arizona Property Tax Lien Primer More About Arizona Property Tax Liens If you have enjoyed this Primer and want more information about Arizona property tax liens . . IRS liens. 280 pages. e. Manoil. judgments. the book covers basics to advanced issues of the statutory and judicial processes. foreclosure forms.00 plus tax and shipping (see order form on page 24). and useful statistical and data resources. Basics: • How the tax lien sale works • Property research checklist • What the investor buys • Foreclosure checklist • Risks of tax lien investing • Flow chart of foreclosure process Advanced issues: • Foreclosure problems and how to deal with them • Resolving priority of liens. Add the ultimate reference to your investment tools. Phoenix. Approx. In 17 chapters (see summary table of contents on the next page). 2002. valuing. the book contains valuable appendices: 22 • Key legal forms for prosecuting a judicial foreclosure • Directory of Arizona County offices • Select Arizona Census 2000 data . footnotes referencing statutory and case law information. Arizona Property Tax Liens: Guide to Profit. other government claims • Computing lien values and double-checking earned interest reported by Treasurers • Arizona county tax collection statistics • Dealing with interests of Arizona financial institutions resolved by RTC/FDIC • Information resources for researching. comprehensive Index. by Mark L. and selling property • Treatment of tax liens when property owner in bankruptcy In addition to example forms from government offices and websites. . Price: $139. many illustrations.

6. 8. 10. 2. see http://members. 2002 Mark L. 17. 4.net/manoil/contents. 15. AZ 85014. 14.htm. Summary of Contents Table of Contents List of Appendices List of Illustrations Preface 1. 7. 11. Introduction to Arizona Property Tax Liens Overview of the Property Tax Lien Sale Process – Beginning to End Risks of Arizona Property Tax Lien Investing Background – Functions of County Government Offices State's Authority to Assess Taxes – Preparation for Lien Sale Pre-purchase Investigation ("Due Diligence") Tax Lien Sale Treasurer's Records – Subsequent Taxes Redemption Rights and Procedure Judicial Foreclosure of the Right to Redeem Administrative Foreclosure of the Right of Redemption Taking Care of Business . 12. 3.Measuring Performance of Tax Lien Investments Alternative Forms of Tax Lien Investing: For the Time-Challenged and the Entrepreneurial Sale of State Tax Deeds Conflicts in Lien Priority and Other Issues Lien Status With Owner of Record or Other Lien Holder in Bankruptcy Treasurers Survey and Secondary Research Opportunities Appendices Index For the detailed table of contents. 9.• • Spreadsheet templates for estimating unredeemed lien value and calculating return on investment in effective yield (compound interest) terms Explanation of Arizona Tax Classes and Department of Revenue Use Codes • Statistics of Arizona Counties’ assessment rolls and their tax collection experience • List of Arizona failed financial institutions under FDIC receivership/ conservatorship • Sample forms and relevant IRS publications To benefit from this singular resource. fill out and print the form on the following page and mail it with your check or money order to: Capital West Publishing 5515 North Seventh Street PMB 5-159P Phoenix. 13. 16. © 1999.cox. All Rights Reserved 23 . Manoil. 5.

00 Profit. Date Card Holder Signature Card Billing Address (if different than shipping address below) SHIP ITEMS TO: Name: Company: Address: City.00 Shipping: Order Total: ** Canada and Mexico: $15. PMB 5-159P Phoenix. by Mark Manoil AZ residents please add 8. Protection and Prosecution. 5515 North 7th Street. _____VISA _____MasterCard _____American Express_____Discover Card # Exp.26): ** Add $6. PAYMENT METHOD ( Check One ): _____ Check or Money Order Payable to "Capital West Publishing. Other Countries: $25.1% Sales Tax (11.00.Arizona Property Tax Lien Primer Arizona Property Tax Liens Order Form Fill out this form and fax or mail to: Capital West Publishing. Zip: Telephone: Email*: *Provide your email if you would like to receive our free periodic tax lien ALERTS about current developments and opportunities in Arizona property tax liens." Enclosed.Guide to 139. Inc. State. 2002 edition. Inc. 24 . Arizona 85014 Fax: (888) 958-7106 (Toll free) | Tel: (602) 264-1889 Item # ISBN 09669711-1-6 Product Name Price Arizona Property Tax Liens .00.