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.
Resources
End Home Equity Theft Model Policy
Stop Home Equity Theft in Arizona
Download Data
State Summaries
Arizona owners can lose homes over as little as $50 in back taxes
Legal Appendix
Arizona Home Equity Theft Laws
Does the law commonly protect owners’ equity?
- Analysis
-
No. Typically, Arizona sells a tax lien at a price fixed by the amount of the debt, and bidders bid down on the interest rate charged on the debt. This procedure is incapable of generating any surplus proceeds to protect the owner’s equity. Upon foreclosure of the tax lien, the former owner has “no further legal or equitable right, title or interest in the property[.]”
- Citation
-
Ariz. Rev. Stat. §§ 42-18114, -18204(B), -18123.
Are there any exceptions to that rule?
- Analysis
-
Yes. If there are no qualifying bids at the tax lien auction, the tax lien is transferred to the state. Upon foreclosure of the tax lien, the county (on behalf of the state) sells the property outright to the highest bidder. Surplus proceeds from this sale are paid to the former owner of the property.
- Citation
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Ariz. Rev. Stat. §§ 42-18113, 42-18301 to -18303(C).
Does the government sell tax liens, or does it sell property outright, and what procedures does it use for the sale?
- Analysis
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The government sells tax liens at a price fixed by the amount of the debt. The winning bidder will be the investor that offers to charge the lowest interest rate on the debt.
- Citation
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Ariz. Rev. Stat. § 42-18114.
What interest and penalties accrue for delinquent taxes, and who collects them?
- Analysis
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While the maximum interest rate is 16% per year, it is commonly lower, since the lien is sold to the investor offering the lowest interest rate. Arizona law also imposes a penalty at the point of the tax lien sale at 5% of the delinquency or $5.00, whichever is greater (meaning that this law, passed in 1997, contemplates that property may be sold over tax debts worth less than $100).
- Citation
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Ariz. Rev. Stat. §§ 42-18053, -18114, -18107, -18153.
What is the redemption period—the length of time to pay the debt prior to permanently losing title?
- Analysis
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Typically, a property is susceptible to foreclosure three years after the date of the tax lien. However, redemption remains available until the final judgment of foreclosure is issued. In cases where the tax lien is held by the state, the property is not susceptible to foreclosure until five years from the date the lien was assigned to the state. Here, too, redemption remains available until the point at which a treasurer’s deed is issued.
- Citation
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Ariz. Rev. Stat. §§ 42-18152, -18261, -18201.
If equity is stolen, who profits?
- Analysis
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Equity is kept by the lienholder.
- Citation
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Ariz. Rev. Stat. §§ 42-18114, -18204.
How much time does the previous owner have to claim the surplus proceeds, and what are the procedures for claiming them?
- Analysis
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Typically, there will be no surplus proceeds because the price of the tax lien is fixed at the amount of the debt. However, in cases where no one purchases the tax lien, the property is transferred to the state for sale, and the law requires “[a]ny balance remaining with the treasurer after payment of the taxes, interest, penalties, fees and costs shall be paid to the owner of the property who was dispossessed by the sale.” Notably, the statute imposes an affirmative duty (“shall be paid”) on the government to ensure that the former owner is made whole.
- Citation
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Ariz. Rev. Stat. §§ 42-18114, -18303(c).
What types of foreclosures are used in the state?
- Analysis
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In most cases, Arizona uses judicial foreclosure in personam. However, in cases where the property has been transferred to the state, administrative procedures are available as well.
- Citation
- Ariz. Rev. Stat. §§ 42-18201, -18204, -18207, -18261.
What types of notice does the state require?
- Analysis
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(1) Notice of tax delinquency, (2) notice of all delinquent properties subject to tax lien sale, (3) notice before initiating the foreclosure action, and (4) notice of the application for a treasurer’s deed.
- Citation
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Ariz. Rev. Stat. §§ 42-18106, -18109, -18108, -18202, -18264, -18265, -18266.
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/.