Tax Liens AZ

[Charlie Tang]

Hi Everyone,

I have some questions regarding tax lien sales in AZ. The information I have found online has been pretty ambiguous and is usually a pitch to buy some sort of e-book. I'd rather get information from people who have experience in this Area.

I grew up in AZ and I'm a recent college graduate--I've moved to the bay area. I have no significant debt and I'm looking to invest in tax liens in Arizona. I should have about 10k saved for investment purposes by next February. I wanted to know the following things.

1) What is the process of investing in tax liens for Maricopa County? I know they sell OTC as well, what is this process? If OTC is viable process for returns, will investing around 1500 a month into OTC be a good path?

2) What should I look for in a property?

3) What kind of returns should I expect. I understand it is a bid down process on the interest rate, but what is a reasonable expectation.

4) Where can I find research regarding these properties. I have only been able to find parcel information, without addresses or ownership information.

Thank you all for your help!

[Jerry K.]

Charlie,
I invest in AZ tax liens but I have not done Maricopa County.
1) OTC in Maricopa is a little different than most other counties. Maricopa has 20k to 30k in liens sold each year. The ones that are left for OTC can be a little better than other counties that only sell a few thousand liens per year. Know what the underlying property is! Due diligence is extremely important as Ned pointed out.

Investing $1,500 per month is a little hard to do in any one county since most counties only sell tax liens once per year. The OTC are sometimes sold at any time, but many counties that sell OTC liens are moving to a one time sale of all OTC liens each year.

Your best bet for a monthly investment is finding smaller counties that allow you to call them and buy OTC at any time during the year. Maybe Maricopa does that, but I don't know for sure.

2) Ned nailed the most important fact for your second question of what to look for in a property. It has to be worth more than the taxes. And since AZ is a 3 year redemption period, you need to calculate what you would pay for three years of taxes and then foreclosing (legal) fees.

I had some liens I bought 2 years ago on vacant residential land that at that time had dropped from the 2008 highs of $20K-$25K per lot value down to $15K when I bought the liens. Now that I'm getting close to foreclosure, I see the current market value is about $9K per lot. I'll only have about $1,200 in total for the taxes for the 3 years per lot, and when you add in about $2K in foreclosure costs, that cuts into the profits. But - it is still a profit, just not the multiple I originally thought I might get. The good news is I bought 6 liens. 3 paid off after 14 months at a 16% rate. The others may still redeem before foreclosure, and I'm earning 16% on them as well.

3) Ahh the eternal question before you invest - what will I earn? It depends. I invest in Northern AZ counties. I have 3 years of bid data that I analyze and determine my bids and what to expect. Here's what I've found and it should apply to other counties;
a) Most of the liens are on residential properties.
b) The highest rates are paid (won) on vacant residential land.
c) Many of the 16% (highest rate in AZ) winners are on land that is too small to build on or a drainage ditch or landlocked parcels. Reminder again to do your due diligence! Yes there are many good buildable lots in the auctions, but make sure you have researched everything you bid on.
d) The top notch homes or other buildings that are in the auctions go for 0% to 4% rates. They pay off (redeem) in a matter of weeks - usually.
e) You can get higher rates of return on the large parcels or really expensive underlying properties. If the lien is over $20,000 then you have fewer bidders. However, look out for legal messes with those liens.

Last year there several properties in the exclusive golf course community in one of the AZ counties I invest in. I couldn't believe there were no bids going into the last day before the online auction closed. I didn't have the funds to bid on these $30k plus liens that already had one year of the 3 year redemption period in the books. So I did a little research on the golf course.

Turns out the developer held the title on the parcels and was in bankruptcy. It could tie up the liens for years and there have been cases where the bankruptcy judge reduces the back taxes and interest owed - so you can end up with nothing for your investment. You will probably get your money back, but with little to no interest and tied up longer than 3 years. Someone did bid on the last day and was awarded 16% interest, but the risk would be too great for me at those levels.

If you want to just earn a good rate of interest, then bid on residential lots that have a loan against them. The bank will probably pay the taxes before foreclosure. Or just pay the taxes for the first year. If the owner does not pay (redeem) then don't pay the next years taxes (called sub taxes) and let the lien go into the auction again the next year. The new winner will have to pay all the principal and interest and you'll get paid off. The risk there is if nobody bids - rare event if you did your due diligence and the property is worth something.

4) In addition to the website Ned gave you, you can go the Maricopa online auction website https://www.bidmaricopa.com/ and create a free account. That will allow you to see the results of last year and should give you access to any OTC online sales they might offer.

Good luck.