Articles Posted in Tax Liens

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A recent case highlighted the problems that can arise when debtors file bankruptcy. The case is Rebuild America v. Davis decided by the Supreme Court of Appeals, West Virginia, No. 14-0432, opinion filed April 9, 2015. Although a West Virginia case, it may have application in other states since Bankruptcy law is Federal.

In this case, the debtors, Davis, were unable to pay their real estate taxes and a delinquency notice was published. They filed a Chapter 7 Bankruptcy and were subsequently discharged. During the course of their bankruptcy a second notice advising of a tax lien sale was sent to the Davis’, but it was returned as undeliverable. The tax sale was concluded after the debtors had received their discharge in bankruptcy. No one redeemed the property and a tax deed was issued to the purchaser.

Finally, the debtors took action. They filed suit to set aside the tax sale and the court ruled in their favor. The ruling was upheld on appeal with the appellate court holding that the bankruptcy stay rendered the statutory tax sale notice void ab initio and therefor the tax lien sale did not comply with the necessary statutory procedure. The tax deed was set aside.

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In Arizona, one half of the property taxes become due October 1, and the second half the following March 1. By the following December, the treasurer in every Arizona county prepares a list of properties with delinquent taxes. Delinquent property taxes accrue interest at an annual rate of 16%.

The list is published, and delinquent notices are sent to the homeowners stating that a tax certificate will be auctioned on a specific date if the taxes are not paid. Each February the tax lien certificates are sold at a public auction called a Tax Lien Certificate Sale. Anybody can participate in the Tax Certificate Sale. In order to participate in the sale a bidder must register with the Treasurer’s office.

The tax certificate can be purchased from the County Treasurer by paying the total of the back taxes along with any accrued interest plus purchase fees. Tax certificates are a high priority lien against the property, which means that there are very few other claims against a property which would be paid before the tax certificate lien.

When you purchase a tax certificate, you do not own the property. Instead, you own a note on the property, and earn interest for each month the note remains outstanding. The tax liens will accrue interest at the rate agreed to in what is referred to as a reverse auction (i.e. the bidder offering the lowest interest rate wins).

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