In Arizona, small business owners and homeowners alike are “buying time” on their property taxes by simply opting out of paying, reports Coconino County Treasurer Bonny Lynn[1]. In this Arizona county, the number of tax liens for sale this January is fully double the number just three years ago in 2007 before the worst of the bust hit the state. Lynn believes that this is just another product of the state’s struggling economy, but Dharmesh Vora, president of the Vora Financial Group in Coconino, believes that many businesses and homeowners may view a failure to pay property taxes on time “essentially as a small loan with a low interest rate that they don’t need to apply for.” Since tax liens have much more lenient guidelines when it comes to redemption than do federal income taxes, for example, they may be viewed as a lesser of two evils.
Arizona is a tax lien state, which means that when tax lien investors bid on the debts, they are bidding on the debt itself rather than on a property that has already been foreclosed[2]. The state sets the interest rate on the lien at 16 percent, but most liens are “bid down” to a lower interest rate – last year, around nine percent. After three years, if the lien has not been redeemed, the owner of the debt can foreclose on the property. If Vora is correct that most property owners are only opting to not pay temporarily, then the odds of a foreclosure in this state on a tax lien might decrease even further than they have already – particularly on liens with lower interest rates. However, since “robbing Peter to pay Paul” often backfires, it could mean that Arizona, already a “hardest hit” state in the housing crisis, could be an ideal place for tax lien investors to focus in the future.
Does the situation in Coconino attract you to Arizona tax liens or would you steer clear?
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[1] http://www.istockanalyst.com/article/viewiStockNews/articleid/4849117
[2] http://www.arizonataxliens.com/tax-lien-faqs.php
I see alot of opportunity there and will be watching to see how it plays out.
I invest in Maricopa county and believe AZ is one of the best states to invest in tax liens. However, I don’t understand why in your article, you think the homeowner only pays the “bid down” rate. That’s not true. They accrue the full 16%; it’s the investor who gets the “bid down” rate and the county gets the difference. The taxpayer pays the full 16% per annum, pro-rated monthly. Ie., if the investor wins the bid at 10%, when lien is redeemed, the investor will receive 10% of CP Base Amt and the state will keep the other 6%. Quite frankly, it’s a hell of a deal for the county. I’d only wish they raise the statutory rate. One way for the “states” to benefit from decreased tax revenues. Win-win situation for states and investors.
Thanks, Brian! I did not realize that we had not made that clear, and I appreciate your keen eye!