Tax Liens or assignment

[Stephen Mallen]

I have a property next door and the taxes are owed, it will go for auction February the taxes are only around $300 for the past two years.  The property is only worth  around $6000. I know the past owners are not going to pay. The property is in Arizona so its 3 year redemption period. Should I wait tell auction and buy or pay the back tax and hold the lien for 3 years. Also is there anyway to receive a insured title faster then the 3 year wait and or is it faster to buy at auction to receive title faster?

[Jerry K.]

@Stephen Mallen, @Dennis Weber and @Ned Carey have given you great advice. I buy tax liens in AZ and Ned has great points. 

Regarding buying the lot next door;

1. You say it has 2 years of taxes owed for about $300. Where did you get that information? Does somebody else own a previous tax lien? You don't have to give the address, but what county is this in? Maricopa county had different rules for tax liens than other AZ counties when it comes to how many people can own a tax lien on the same parcel.
2. If you buy the lien, and if it is not in Maricopa, then yes it could be the second year of taxes owed and you would be the only lien holder - thus the only person who could foreclose for taxes. If it is in Maricopa, there might be another party holding an older lien whose lien will hit the 3 year redemption period first and could foreclose before you.
3. If the lien goes to auction, there is no guarantee you will win the lien. If it is an open outcry auction (meaning you have to be there in person bidding out loud against other bidders) you could easily lose to another bidder who immediately bids Zero. In AZ you win the bid not by bidding the most you will pay, you bid the lowest interest rate you will accept to be paid on the lien. If someone starts by bidding zero percent, they win. If the auction is an online tax lien auction, then you have no idea what other people have bid. You enter your bid (lowest interest rate you would accept on the lien) and wait for the auction to end to see if you won. If you bid zero percent, and 3 other people also bid zero percent - then the software randomly chooses a winner from the four of you - and it might not be you.
4. The good news for a tax lien foreclosure in AZ is that it is a judicial foreclosure. Yes it costs money (anywhere from $1,800 to $3,000) but the judicial process clears the title since they contact all lien holders, family, etc. and give them time to contest your foreclosure and pay off the back taxes and interest. In the counties I have started tax lien foreclosures in AZ, if a person pays off the lien and interest during the foreclosure process, they had to pay all my attorney fees as well. Not sure if that is in every county in AZ, but that has been my experience with tax lien foreclosure in AZ.

Regarding your purchase of your current property;

1. Ned had a good question - you say you bought from a company that held the lien they bought the last year, but you had to wait until October to get clear title. Are you sure they had bought a tax lien the last year? It is possible they bought a lien that included the previous 4 years of taxes and they did the foreclosure, but that is rare. 
2. When you bought in January, did they give you a Quit claim deed? That would make sense since, as the others said, all a Quit claim deed does is give the holders rights to the property. They might have started a foreclosure and had to wait until that closed in October to give you clear title. But, oh boy, if that was the situation and somebody came forward during the foreclosure and paid it off, you would be out of the property you bought in January. When did you move in after buying the property?

If that the situation I described above is true, where you bought the property from the tax lien holder, they had started the foreclosure and it completed with no redemption by anybody and you got clear title, AND if the property next door is owned by the same people (now deceased) who previously owned the property you just bought - then you might be able to get the next door property through the tax lien foreclosure process once the 3 full years are up from the date of the first tax lien was issued on that property (assuming you own the oldest lien on that property).

The only way to get the property before a tax lien auction is to get the owner to sell. Being deceased with no heirs, there is still an estate that needs to be settled. Probate would have to be opened and now we are out of my realm of knowledge. Talking to a real estate or probate lawyer could be the best way to find out. Offer to take one to breakfast or lunch and for the price of buying their meal, you could get your answer on what it would take to try an buy a property in that situation before the tax lien auction.

Just a note on the 3 year redemption; it is a full 3 years from the date of the auction. So if you bought the first tax lien on a property in 2019 February auction - you would not be able to foreclose until March of 2022. If in any other county other than Maricopa county, then you also have to pay the taxes each year until foreclosure or you could lose your lien because the county will sell it to a new investor and pay you off for your lien and interest earned.

When you said the property next door will have a lien for two years of taxes, that makes me think it is not Maricopa county. If that is true and you are buying a lien for 2 years of taxes, you are getting the previous lien date so you are already one full year into the redemption period. In other words, if you get that lien you could start foreclosure in March of 2021 since the previous year lien was created and sold in February of 2018. But again, you have to pay the taxes each year until foreclosure. That means paying them by December 31st each year.