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  • Resources Arizona Home Equity Theft Laws
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  • Home Equity Theft
  • Private Investors
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  • Ending Home Equity Theft
  • Appendix: The Data

Arizona

How It Works

Arizona counties sell tax liens on delinquent properties to private investors, who may foreclose by judicial proceeding three years after a sale. Investors get to keep all the equity or proceeds from post-foreclosure sales. 

 

An exception occurs when there are no qualifying bids at a tax lien sale. In such cases, the county transfers the tax lien to the state, which sells the property outright to the highest bidder. The former owner is entitled to the surplus proceeds from this type of sale.

The Impact

Homeowners caught up in judicial tax foreclosures lose, on average, 99% of their equity. For the 117 homes in our dataset, homeowners lost a total of $13 million in equity.

Why It Matters

In Arizona:

  • Every home identified was forcibly seized for tax debts less than the price of a 10-year-old Ford F-150.
  • On average, homeowners lost their homes and all the savings in them for debts worth 1% of the value of the home.
  • Investors were able to keep $10 million more than what was owed to them.

How would you feel if you lost your home and all your equity over a $60 debt? According to research by Pacific Legal Foundation, that’s what happened to one Arizona homeowner, who lost his $60,000 home because of $60 in unpaid property taxes.

This practice is known as home equity theft, and it’s unconstitutional according to the Fifth Amendment of the U.S. Constitution. Regardless, some states allow it, and government entities or private investors reap the spoils. 

Arizona is one of the home equity theft states where investors can gain at a homeowner’s expense. If an Arizona homeowner underpays their property taxes by even a few dollars, the county will place a lien on the property. The county then auctions the lien to private investors who reserve the right to collect property taxes. 

There are many states that don’t allow home equity theft and have a robust market of tax lien investors. And that’s because, as in Arizona, tax liens are guaranteed to turn a profit for investors, who may charge up to 16 percent annual interest on the debt.

Meanwhile, if the homeowner cannot pay the debt and fees, the investor reserves the right to take the entire home, no matter how small the debt or how large the homeowner’s equity stake. 

Recent analyses of Arizona property tax and sales records by Pacific Legal Foundation paint a sobering picture of the unjust suffering this practice inflicts on vulnerable homeowners.

From 2014 through 2019, private investors foreclosed on and sold at least 117 Arizona homes. These private investors kept around $10 million in equity after subtracting the former owners’ tax debts. 

Home equity theft disproportionally affects high-poverty Arizona neighborhoods, such as the Maryvale area in Maricopa, according to the Arizona Republic. Other hard-hit areas include west Phoenix, south Phoenix, and south Glendale, which have large Latino and African American populations.1 Allowing the government and private investors to gain excessively at the expense of these vulnerable populations is unnecessary and immoral.

The U.S. Constitution protects homeowners’ rights to just compensation for seized properties and freedom from excessive fines. These laws require Arizona counties and private investors to return to homeowners the difference between what they owed and what the government and private investors took. The Arizona Legislature can act now to restore homeowners’ property rights by following other states’ models and allowing homeowners to reclaim their equity after tax foreclosures, without harming the ability of counties to sell tax liens.

1 Emily L. Mahoney and Charles T. Clark, “Arizona Owners Can Lose Homes over as Little as $50 in Back Taxes,” Arizona Republic, USA Today Network, June 16, 2017, https://www.azcentral.com/story/money/real-estate/2017/06/12/tax-lien-foreclosures-arizona-maricopa-county/366328001/.

Pacific Legal Foundation is a 501(c)(3) nonprofit organization. © Pacific Legal Foundation, 2022.

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