AZ Property Tax Lien ALERTS
By Mark L. Manoil, Phoenix
Whether you are exploring tax liens as a potential new investment, you have been buying for years, or you are a portfolio manager for an institutional investor, you probably focus most of your tax lien buying efforts on the annual auctions in February. The standard drill is to obtain the list of delinquent parcels that is published in January, and start researching the properties to decide what to bid on when the auction comes. Buying Aover the counter@ after auction is the other alternative, but the selection is usually limited, and not as attractive. In this article, I describe pros and cons of different buying approaches, including suggestions for buyers and sellers in a secondary market for tax liens.
The primary ways to buy tax liens are at auction, or later, over the counter at the treasurer=s office. In both cases one is buying the lien from the state of Arizona. ASecondary market@ simply means buying tax liens from other investors B liens already purchased from the primary market.
The benefit of buying liens at auction is that this is where liens on the best properties (the best security for the liens) is available. The downsides of participating in the auction are that interest rates are likely to be bid down on the desirable properties, there is no guaranty of having the winning bid, and research efforts in advance of the auction are likely to be wasted because the prepared bidders are likely to be chasing the same investments.
Buying over the counter, albeit from a smaller universe of opportunity, allows purchases at the highest interest rate, and perhaps a better ratio of research effort to actual purchases made. But what do you do if you are not satisfied with liens available over the counter? Just wait until the next auction? Not necessarily.
Thinking in secondary market terms, the buyer can approach the greater universe of already-sold tax certificates with specific investment objectives in mind. If the desire is to buy an interest-bearing vehicle, one can research at the treasurer=s office those liens originally sold within the last 12 months. After inquiring through the treasurer=s office, the lien holder can be contacted with an offer to purchase.
Such a deal can benefit both parties. The buyer can take its time researching the liens before even making an offer, making sure that it will obtain a certificate bearing an attractive interest rate. Once the buyer pays subsequent delinquent taxes, these amounts all earn interest at the attractive bid rate. The seller gets cashed out and earns the certificate rate or better (if a purchase premium is offered), which allows the seller potential compounding on the investment if the proceeds can be reinvested at the next auction.
The downside to buying liens this way, especially if a premium is paid, is that the lien could be redeemed shortly after the purchase, and insufficient new interest would have been earned to cover the buyer's premium expense. Also, the interest paid to the seller of the certificate, while part of the buyer=s investment, will not earn interest for the buyer. And from the seller=s point of view, one year (or less) in interest on the certificate investment may be insufficient for the seller to recoup its due diligence expenses incurred before buying the certificate.
If your goal is to buy foreclosable liens, and don=t care so much about the interest return on the certificates, your research in the treasurer=s records can focus instead on those certificates that are close to three years old, or older. After evaluating the properties securing these liens, you can contact the lienholder with an offer to purchase.
Do not assume that just because another lien holder has not acted to foreclose that there is necessarily something amiss with the property. Often institutional lien buyers prefer the redemption outcome, and to move forward with lien foreclosure requires a multi-person decision-making process, which has a lower priority than making new purchases.
The benefit, then, to the original lien buyer is that it receives the redemption equivalent, or at least liquidity, without any additional expense, so that it can reinvest the cash proceeds, which is its primary business. The new buyer obtains the right to bring a foreclosure action without delay.
Buying a lien this way and starting foreclosure right away means you will not receive any substantial return if the lien is redeemed, unless you were able to negotiate a discount with the lien seller. By cashing out, the lien seller locks in its return on investment, which might be less than it could have obtained through successful foreclosure and sale of the property.
The rules of the Asingle-certificate@ counties discussed in Chapter 8 of Arizona Property Tax Liens - Guide to Profit, Protection and Prosecution (available at cpexchange.com) may mandate the same result as this latter approach when subsequent delinquent taxes on a parcel have not been paid and endorsed on a certificate.
To conduct the research discussed in this article, the record of tax lien sales in the appropriate treasurer=s office should be consulted. Many counties code the lien buyers instead of showing their names and addresses in the record of sales. It will thus be necessary to inquire with the treasurer's office about the identity of the lien holders you wish to contact. If they resist providing the information, it may be necessary to resort to Arizona=s public records request statutes, A.R.S. Sec. 39-121 and following.
The Tax Lien Primer website has moved to http://members.cox.net/manoil, also reachable through http://cpexchange.com.
Arizona Property Tax Liens: Guide to Profit, Protection and Prosecution has been published and is now shipping! The 272 page Guide is packed with examples of successful investing techniques, details of how the tax lien sale and foreclosure system works in Arizona, with citations to pertinent legal authority, and useful checklists and forms. Please take a look at the table of contents, the list of illustrations and list of appendices from the book at http://members.cox.net/manoil/newbook.htm. You can order on-line or print out an Order Form at the website for faxing or mailing. This is a must-have reference to best profit from buying and managing an Arizona tax lien portfolio!
Mark L. Manoil
Carson Messinger Elliott Laughlin & Ragan, PLLC
3300 North Central Avenue, 19th Floor
Phoenix, AZ 85012
602-264-2261
Arizona Property Tax Lien Primer: http://members.cox.net/manoil
The information presented in this communication is not intended as legal advice, nor does this communication establish an attorney-client relationship. The opinions expressed are those solely of Mark Manoil, unless otherwise noted. I specifically disclaim any liability for any reader's detrimental reliance on the information and views presented herein. If you need professional advice, please contact a competent professional.
© 2002
Mark L. Manoil
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