By Mark L. Manoil, Phoenix

As noted in our Alert of April 25, 2003, this year’s state legislature passed a bill adding new Arizona Revised Statutes § 42-18208, a retroactive statute of limitations on property tax lien foreclosures.

The new law, which takes effect September 18, 2003, provides that unredeemed tax liens ("CPs") purchased before August 31, 2002, are expired and void, unless an action to foreclose has been commenced on or before ten years from the lien’s purchase date.

New A.R.S. § 42-18208 provides that the Treasurer is to give notification of pending expiration of the lien at least six months before the CP is to expire; the statute is silent as to the status of CPs for which more than 10 years have already passed since their acquisition, calculated back from the effective date of the new law.

Lawyers for CP holders will be able to argue that the holders must be given notice of pending expiration before their lien is "expired;" lawyers for property owners and other competing interests now have ammunition that the 10-year or older CPs are immediately expired upon the effective date of the Act. As noted above, the arguments about continuing lien validity can simply be avoided if before the effective date of the Act the CP holder has "commenced an action to foreclose the right of redemption."

To commence an action to foreclose before the effective date of the new law would require that a 30-day Notice of Intent to Foreclose have been given at least 30 days before then or by August 17, 2003.

Many investors holding such older CPs may have already written off their investments as worthless. However, it will probably make sense to at least give the 30-day notice even if you do not intend to foreclose the CP, just to preserve the possibility of selling it to someone else who will pursue the foreclosure. This way, some salvage value may be obtained for the investment.

All is not necessarily lost if you fail to start your foreclosure before September 18, 2003, however. A.R.S. § 12-505 arguably provides a year’s grace period before the new statute of limitations cuts off the oldest CPs. Sub-paragraph C of the statute says: "If an amendment of pre-existing law shortens the time of limitation fixed in the pre-existing law so that an action under pre-existing law would be barred when the amendment takes effect, such action may be brought within one year from the time the new law takes effect, and not afterward." Also, you may be able to: (1) challenge the constitutionality of the new law, or (2) rely on certain Treasurers’ announced intentions of how they plan to interpret the new statute.

The Maricopa County Treasurer has announced that his office will not scratch off older liens until after he has at least given the notice and the time has passed. He also stated that he interprets the "purchase date" being the last date of paying subsequent taxes on the CP. The Yavapai County Treasurer has indicated a preliminary analysis that the "purchase date" means the original acquisition date, regardless of sub-taxing activity.

If, as an investor, you consider yourself more of a risk-taker, this may be an opportune time for you to acquire some of the older tax lien positions, assuming your research indicates the property subject to the tax liens will secure the lien investment.

Our office will be pleased to prepare your 30-day notices according to statute for $50 per parcel, although at the time of this writing it is too late to send 30-day notices which will allow suit prior to the new Act’s effective date. If you wish to take advantage of this opportunity, please send a cashier’s check or money order with your Parcel/CP list to us at Tiffany & Bosco, attention: Mark L. Manoil, 1850 N. Central Avenue, Fifth Floor, Phoenix, Arizona 85004.

If you’d like to offer your older CP for sale to other possible lien buyers, then please mention that when you contact us.

Is the CP you bought at auction supposed to earn interest for the month of February in which it was sold? If you pay subsequent delinquent taxes on a CP in June, should the redemption of that lien include interest on the subtax amount for June?

The Pima County Treasurer apparently answers "no" to both questions.

Most of Arizona’s county treasurers agree on the following analysis to answer these questions: (1) interest on delinquent taxes is calculated on a basis of a fraction of a month counting as a whole month (A.R.S. § 42-18053); (2) interest to be paid on a certificate of purchase is to be computed pursuant to A.R.S. § 42-18053 (A.R.S. § 42-18114); and (3) the amount required for redemption of a tax lien is the amount for which the tax lien was sold, with interest at the rate stated in the CP (see A.R.S. § 42-18114), and all sub-taxes paid by the purchaser at the same rate as stated in the CP (A.R.S. § 42-18153).

Accordingly, because a partial month counts as a full month, the answer to the redemption interest calculations should be "yes," in both cases.

The Pima County Treasurer’s office, however, has explained to us that they believe neither February nor June interest (on sub-taxes) should be included in the redemption amount calculation. Their reason is that they believe the "simple" interest direction of A.R.S. § 42-18053(A) prohibits further interest accrual for February after they have calculated interest on the delinquent tax up to the date of sale as part of the lien sale amount. They argue that paying CP interest for February would convert that pre-sale interest to principal, upon which the tax lien bidder’s bid interest rate applies following purchase.

The statutes cited above though, make clear that this compounding event is supposed to take place. A.R.S. § 42-18114 specifies that the successful bidder is the one "who pays the whole amount of delinquent taxes, interest, penalties and charges due on the property . . .", which in its aggregate form is what the CP bid interest accrues on for purposes of calculating the redemption amount under A.R.S. § 42-18153.

If you have purchased tax liens in Pima County in the last two years and have had redemption, very likely your redemption interest was discounted by the Treasurer’s office.

The Treasurer’s office has rejected our early efforts urging it to review and correct its approach to calculation. Several of my clients have decided to pursue appropriate legal action to enforce state law.

If you would like to join in the claim for reimbursement of unauthorized discounts and to have the Pima County Treasurer compute interest in compliance with the statutes in the future, please contact me at .

• Arizona Property Tax Liens: Guide to Profit, Protection and Prosecution (ISBN: 0-9669711-1-6) June 2002, is available for sale at cpexchange.com. Order your copy and see why the State Bar of Arizona named this its February, 2003 book of the month. You can order online, or by fax or mail. 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!
• Website Moving - Please note that the Arizona Property Tax Lien Primer website will move soon to cpexchange.com. New content, particularly our extensive "frequently asked questions" area, is being added.
• Arizona Property Tax Lien Buyers consider new organization - The National Tax Lien Association (www.ntlainfo.org) has proven to be an effective resource for its members in disbursing information concerning property tax and municipal lien matters nationwide. Some individuals and organizations have mentioned the possibility of organizing/creating a similar trade organization at the state level for Arizona property tax lien investors. If you are interested in learning more about such a group and possibly becoming a member if it is formally organized, please send me a short note at Be sure to include your name, address, daytime phone and fax number (if you have one).

http://cpexchange.com

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.

© 2003 Mark L. Manoil, all rights reserved