With the arrival of a New Year comes the perfect time to start investing in tax liens. The first major tax lien certificate sales of the year take place in Arizona. Some of the counties in Arizona begin their sales the last week of January and by the end of February every county in Arizona will have completed their annual tax lien sale.
Arizona has fifteen counties, six of them hold their annual tax lien sale on the Internet, while the nine remaining counties still hold to the tradition of conducting live auctions. Live auctions require that the investors be in attendance in order to participate. There are two companies that are used by the counties in Arizona to conduct online tax sales. The first company is Real Auction. Real Auction conducts the online sales for Coconino, Pinal and Yavapai counties. The other company is Grant Street, and they conduct online tax sales for Apache, Mohave, and Maricopa counties. The nine remaining counties Cochise, Graham, Gila, Greenlee, La Paz, Navaho, Pima, Santa Cruz, and Yuma conduct live auctions during the month of February.
Arizona state statutes dictate an interest rate of 16% with a redemption period of three years. In Arizona they refer to tax lien certificates as “certificates of purchase.” It would be wise for you to do the same in any correspondence you may have with the counties. The method used to auction the certificates of purchase is a bid down of the interest rate. That means the investors place their bids by offering to accept an interest rate of 16% or less. Unlike Florida where investors bid in .25% increments in Arizona the bid increment is 1% at a time. The investor that is willing to accept the lowest interest rate is the winning bidder. Bidding stops at 0%, however it is extremely important to stop your bidding at 1%. Failure to do so will result in the forfeiture of any possible way to make a profit. It is important to note that the price of the certificate of purchase remains constant. The price of the certificate of purchase is set at the amount owed on delinquent property taxes, plus sales cost and penalties.
Investors that don’t fully understand the scope of the opportunity tend to dislike the bid down on the interest sales method. When uneducated investors see the most desirable properties bid down to a return of 3%, 2%, or 1% they become frustrated with the process. They are left to wonder why anyone in their right mind would accept such a low return. At the U.S. Tax Lien Association our support team has this discussion on a regular basis with new inexperienced investors.
The good news is, there is a perfectly logical reason for acquiring tax liens in a bid down on the interest rate tax lien sale. It is called endorsing the subsequent taxes. In laymen terms that means purchasing liens on the future property taxes for each of the three years of the redemption period. Anytime between June 1st and January 31st the holder of the certificate of purchase may pay the subsequent taxes and have them added to their certificate of purchase. The interest rate on the subsequent taxes will be that of the original certificate of purchase. This protects the investor’s interest in the property and prevents it from being offered to other investors in a future sale.
At the U.S. Tax Lien Association, we teach our clients how to get the full 16% statutory interest rate by participating in assignment purchasing after the conclusion of the annual tax sale. Historically there are a large number of certificates of purchase that go unsold during the annual county tax sales held each year in Arizona. The unsold certificates of purchase are known as county held certificates. When an investor purchases a county held certificate the county assigns their rights to the certificate to the investor, thus the term assignment purchasing. After the completion of the annual tax sale all fifteen counties offer the remaining certificates of purchase on a first come first served basis. A small number of the counties make their certificates of purchase available online (as discussed above) through Real Auction or Grant Street. The remaining counties require that you contact them directly to purchase. Many of the counties post lists of their county held certificates online. The lists are typically found on the county treasurer’s page of the counties website. Some of the counties create a CD-ROM containing their list of county held certificates. They offer the CD-ROM for sale to potential investors.
Both of the opportunities discussed in this post offer you a great opportunity to start the New Year in a positive way. As always you should conduct proper evaluation of the properties using the steps taught by the U.S. Tax Lien Association.
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