In another sign the housing market is slowly recovering, the number of delinquent property tax liens sold to investors during the annual auction in 2015 is down in Maricopa County. According to County Treasurer, Charles “Hos” Hoskins, sales for the auction this year averaged just over 12,000 properties, compared to over 21,000 during the recession years.
Hoskins said this year’s totals are right at pre-recession levels, and is the second consecutive year the sales have been at the 12,000 level.
“I would say this means we have turned the corner and we are seeing recovery,” Hoskins said. “The worst is clearly over for homeowners.”
Nevertheless, Hoskins is predicting that more than 400 property foreclosures will occur this year. That’s because the liens sold in the February 2012 auction for tax year 2010 became eligible to be foreclosed this past February. Delinquent tax liens are purchased by investors during an on-line auction in February each year, and can be foreclosed three years later.
Foreclosures have increased from 55 in 2008 to 377 in 2014. When a lien is sold the investor pays all the taxes, interest and fees owed and bids an interest rate that they want to earn on their investment. This year, the average bid rate was 3.84 percent – the lowest on record. “We saw a dramatic increase in delinquencies during the Great Recession,” Hoskins said. “The other reason for the high number of foreclosures is that delinquent property tax liens must be paid in full and in a lump sum. This lump sum payment provision puts a heavy burden on property owners trying to dig out of the recession.”
Thus, the amount owed to an investor could more than quadruple during the three-year time period before foreclosure. It grows because on June first each year the investor has the right to purchase the liens for following years before they go to auction. These following year liens are added to the original lien and all years must be paid in a lump sum. For example, a 2013 lien for $1000 purchased in February would allow the investor to purchase the 2014 lien on June 1, 2015.
Now the homeowner must pay the investor a lump sum of $2000 plus interest and fees to clear the lien. Add another $1000 each, plus interest and fees, for the 2015 and 2016 tax years and the lump sum amount that must be paid to the investor to avoid foreclosure would be well over $6,000 in February 2018. “This is a nearly impossible burden and has caused numerous homeowners to be taxed out of their homes,” Hoskins said.
Hoskins pointed that Maricopa County property owners will see some relief in the future because of legislation passed during the most recent session. The bill, sponsored by Sen. Steve Smith, R- Maricopa and supported by the county treasurer, will separate each year’s lien and allow the homeowner to pay the oldest tax year separately. This means that a homeowner would have until February 2018 to pay the 2013 taxes delaying foreclosure action until the 2014 taxes became eligible in February 2019, and so on for each following year.
Payments on the oldest lien can be made anytime the homeowner chooses, and must be in four equal principal payments plus accrued interest and fees. The new law will take effect in July and only apply to Maricopa County properties. Hoskins said his office will be mailing information to property owners whose taxes are delinquent for tax year 2014 and prior in June.