People who own real property have to pay property taxes. The government uses the money that these taxes generate to pay for schools, public services, libraries, roads, parks, and the like. Typically, the tax amount is based on a property's assessed value. If you have a mortgage on your home, the loan servicer might collect money from you as part of the monthly mortgage payment to later pay the property taxes. The servicer pays the taxes on the homeowner's behalf through an escrow account. But if the taxes aren't collected and paid through this kind of account, the homeowner must pay them directly.
When homeowners don't pay their property taxes, the overdue amount becomes a lien on the property. A lien effectively makes the property act as collateral for the debt. All states have laws that allow the local government to sell a home through a tax sale process to collect delinquent taxes. Accordingly, if you don't pay the real property taxes on your Arizona home, the county treasurer can hold a tax lien sale and you could eventually lose ownership of your property.
But the winning bidder from the sale can't get ownership of your home right away; you'll get some time to get caught up on the overdue amounts before this happens. You'll most likely eventually lose the property permanently, though, through a foreclosure or another process if you don't pay off the debt during what's called a "redemption period" after the sale.
In Arizona, tax lien sales are held in February each year. (Ariz. Rev. Stat. § 42-18112). The winning bidder at the sale doesn't get title to the property at that time. Instead, the purchaser gets ownership of the tax lien and, along with it, the right to collect the tax debt, plus interest. The winning bidder at the sale will be the one who pays the whole amount of delinquent taxes, interest, penalties, and charges due on the property and offers the lowest rate of interest on the debt. (Ariz. Rev. Stat. § 42-18114). (In some other states, the winning bidder at a tax lien sale is the party that offers the highest amount for the lien itself.) If you don't pay off the amount of the lien plus interest, the purchaser can foreclose the lien and get ownership of the home.
If no one bids for the lien, the county treasurer will assign the lien to the state. (Ariz. Rev. Stat. § 42-18113). The state can eventually apply to the county treasurer to get title to your home if you don't pay off the debt.
On or before September 1st of each year, the county treasurer must mail you (the taxpayer) a notice about the delinquent taxes against the real property that are assessed in your name. (Ariz. Rev. Stat. § 42-18103). The treasurer will mail another notice before the tax lien sale. (Ariz. Rev. Stat. § 42-18108).
The notice of the tax lien sale will also be posted near the outer door of the county treasurer's office, published in a newspaper, and posted on a website. (Ariz. Rev. Stat. § 42-18109).
Many states give delinquent taxpayers the chance to pay off the amounts owed and keep the home. This process is called "redeeming" the property.
In many states, the homeowner can redeem the home after a tax sale by paying the buyer from the tax sale the amount paid (or by paying the taxes owed), plus interest, within a limited amount of time. Exactly how long the redemption period lasts varies from state to state, but usually, the homeowner gets at least a year from the sale to redeem the property.
In other states, though, the redemption period happens before the sale.
In Arizona, if someone—an individual or an entity—buys the tax lien at the sale, you get a three-year redemption period after the sale date during which you can pay off the tax debt and keep your home. (Ariz. Rev. Stat. § 42-18152).
Once three years pass, the person or entity that bought the lien at the tax sale can start an action in court to foreclose the right to redeem and get title to your home. The purchaser must mail you a notice stating the intention to file an action to foreclose at least 30 days, but no more than 180 days, before filing the action. (Ariz. Rev. Stat. § 42-18202).
Arizona law says you can still redeem up until the delivery of a treasurer's deed to the purchaser or the purchaser's heirs or assigns. (Ariz. Rev. Stat. § 42-18152). Also, Arizona law states that any person who's entitled to redeem may do so at any time before judgment is entered, but if the redeemer has notice of the foreclosure action at the time of redemption, the court will assess the costs the plaintiff (the purchaser) has incurred, including reasonable attorneys' fees. (Ariz. Rev. Stat. § 42-18206).
If the purchaser doesn't start an action to foreclose your right of redemption within ten years, the lien becomes void. (Ariz. Rev. Stat. § 42-18208).
If no one buys the lien at the tax sale and the county treasurer transfers the lien to the state, you get a five-year redemption period. (Ariz. Rev. Stat. § 42-18261). After five years expires, the state can apply to the county treasurer to get title to your home. Your right to redeem terminates when the state gets delivery of the deed. (Ariz. Rev. Stat. § 42-18267).
The county treasurer will mail you a notice via certified mail at least 90 days before it transfers the home's title out of your name. (Ariz. Rev. Stat. § 42-18264). If the certified mailing isn't delivered and the property is in an incorporated city or town, the treasurer must post the notice on the property. (Ariz. Rev. Stat. § 42-18266). The treasurer will also publish the notice in a newspaper. (Ariz. Rev. Stat. § 42-18265).
To redeem the property, you'll have to pay the county treasurer:
Property tax liens almost always have priority over other liens, including mortgage liens and deed of trust liens. (For purposes of this discussion, the terms "mortgage" and "deed of trust" are used interchangeably.) Because a property tax lien has priority, if your right of redemption is foreclosed and the purchaser of the tax lien gets ownership of the property through this process, the sale wipes out any mortgages. So, the loan servicer will usually advance money to pay delinquent property taxes. The servicer will then demand reimbursement from you (the borrower).
The terms of most mortgage contracts require the borrower to stay current on the property taxes. If you don't reimburse the servicer for the tax amount it paid, you'll be in default under the terms of the mortgage, and the servicer can foreclose on the home in the same manner as if you had fallen behind in monthly payments.
After demanding repayment of the amount it paid for the taxes, penalties, plus interest (and assuming you repay this tax debt), your servicer will probably set up an escrow account for the loan. Each month, you'll have to pay approximately one-twelfth of the estimated annual cost of property taxes—and perhaps other expenses, like insurance—along with your usual monthly payment of principal and interest. This money goes into the escrow account. The loan servicer then pays the cost of the taxes and other escrow items on your behalf through the escrow account.
The downside to having an escrow account is that you'll have to make a bigger payment to the servicer each month. On the positive side, having an escrow account saves you from having to come up with a large amount of money when tax bills, and perhaps other bills, are due.
If you're having trouble paying your property taxes, you might be able to reduce your tax bill or get extra time to pay. If you're already facing a property tax lien sale in Arizona and have questions or need help redeeming your property, consider talking to a foreclosure lawyer, tax lawyer, or real estate lawyer.