United Tax Liens Blog

How to File a Tax Deed Application

How to File a Tax Deed Application

The world of real estate investing has various dimensions. The United States' housing market is one of the most dynamic globally, and this translates into various profit opportunities. When you talk to seasoned real estate professionals, they will tell you that every homeowner can be considered a prospective property investor. Still, not all of them will be able to capitalize on this potential. Unfortunately, some property owners cannot keep up with all the financial obligations required to hold onto their homes or plots of land. When homeowners fall too far behind on property tax payments, their delinquency opens the door for smart investors to enter the tax lien auction process.

In this article, we will be reviewing the process of applying for a tax deed certificate on a property that has entered delinquency status. As previously mentioned, this can be thought of as one of the various investment opportunities you can explore in the housing market, but not as a property buyer. Instead, you will be an investor seeking to collect interest payments and perhaps getting your name on the deed. It is important to note that tax lien investing is not the same as flipping properties; nonetheless, these two strategies are not mutually exclusive.

We ask that you not think about tax lien or deed investing as ways to “buy homes for a dollar.” If you leaf through old issues of magazines such as The Atlantic, Rolling Stone, and Newsweek, in the back pages you will find small advertisements urging you to receive a mailed booklet explaining how you can participate in “secret” property auctions where paying off outstanding taxes will get you the keys to a nice beachfront home. Tax lien certificates do not work that way; below, we will explain how they unfold and what you can expect. The jurisdiction we have selected to illustrate the process is the Maricopa County Treasurer's Office in Arizona. Tax revenue agencies in other states and counties will not work the same, but you get the general idea. 

Filing a Tax Deed Application

When beginning the process of tax lien foreclosure, filing the tax deed application (TDA) on a property is typically the first step. If you plan to acquire the property or collect interest, filing the TDA will commence the process. You will still need to go through the auction, which may be called a sheriff's sale.

In Maricopa County, delinquent property taxes are auctioned off in an open session that is based on the interest that investors can derive if they pay off the obligation on the spot. Many jurisdictions usually require that the lien be transferred to your name so that you can later file a foreclosure lawsuit if needed. Of course, the timeline for this can vary, but you can expedite the process by providing the required documentation on the spot. When buying on the primary market, you will be required to ask the county directly what they will need from you.

Initiating a Tax Deed Application

When the lien is transferred into your name and is firmly out of the redemption period, the Tax Deed Application process can begin in earnest. You will need to pay off the active certificates in order to complete the foreclosure. Filing the TDA tends to be helpful here as it will trigger the interest rate to increase to 18% annually on the roll-up amount if it is allowed by statute and rule. Please note that this will depend on the jurisdiction. 

The next step in the TDA process is to pay any necessary fees. It's worth noting that most counties' TDA fee in an administrative foreclosure state is usually from $200-$600. You will not acquire interest on any fees paid for the tax deed application. On the plus side, if you are redeemed on the lien, the county will reimburse the fee.

To understand why this process takes place, think about counties and states' needs to fund various services such as road construction, park maintenance, school district improvements, and others. To this effect, property taxes are collected on an annual basis. Maricopa County gives morose homeowners the chance to enter collection status for up to a year. Still, once December comes around, a parcel adding up all delinquent and uncollected property taxes is created to conduct a tax lien sale. 

Revenue collection agencies' goal is to shore up budget holes in the most practical manner, which consists of holding a tax lien certificate auction in many jurisdictions. Winning bidders get the certificate and the chance of collecting excellent interest repayment rates from homeowners. In essence, tax lien investors purchase debt, but they may be able to take possession of the property in some cases.

In the case of tax lien sales in Maricopa County, homeowners have three years to repay their debt to the investor holding the certificate. After that period, the parcel becomes a right to file for foreclosure, which is a judicial process in Arizona. This is when the investor has the opportunity to hold deed and title to the property through a court order.

Should you be wondering about existing mortgages on the property, that is a great question. In the American mortgage lending system, the bank providing a principal mortgage is the lienholder that takes first position. A home equity line of credit usually subordinates to the first bank. You will rarely see these properties going to sheriff's sale because they tend to be mortgaged at 80% loan-to-value ratios, which means that a mortgage servicing company collects tax payments in escrow monthly. There are escrow reserves for taxes and insurance because banks will jealously protect their collateral. 

A mortgage borrower who falls behind on monthly payments will take a while before they are delinquent on property taxes. Once borrowers are far behind on mortgage payments, the banks initiate their forbearance and foreclosure processes; in the meantime, they may reach into their coffers and pay off taxes and insurance until they take possession of the property. In other words, the land and structures you can bid on a tax lien certificate or deed auctions are not usually encumbered by a first mortgage. If the homeowner had been tied to a monthly mortgage payment, he or she might not have fallen into property tax delinquency.

Mortgage banks may not hold interest to the property when you file for foreclosure based on non-repayment of the tax certificate, but this does not mean that the asset will not be saddled with other liens and encumbrances. This is something that all tax lien investors should always keep in mind.

Once the Tax Deed Application is Filed

Upon completing the paperwork, the county will notify the property owner that an investor has applied for the tax deed. From that point, the property owner has time to pay off their back taxes. Typically the given time is between 30-60 days. If the property owner does decide to pay within that time, you will be redeemed on your investment. Additionally, the amount paid to you will include all of the money you invested in the roll-up, fees, and any interest that you have naturally accrued. If the property owner does not pay within the 30-60 day time frame, the county will schedule the property to go to the tax deed auction. The county will also charge a fee to schedule the auction that ranges from $200-$600. Interest will not be earned on the fee amount but can be reimbursed.

After My Certificate Goes to Auction

What do you do when your certificate goes to auction? At the tax deed auction, the minimum bid price starts at the amount invested to guarantee redemption for the tax lien investor. If the property does not get bid on at the auction, the county will then transfer ownership. As a result, the tax lien investor has rights to the property and the opportunity to exercise their preferred exit strategy. 

While it's true that the process of filing a Tax Deed Application can seem complicated, understanding the fundamentals of the process is a surefire way to set yourself up for success. We can provide you with the necessary training you need to make the most out of your tax lien investing efforts, which should always begin with a list of real opportunities available. When you use Marketplace Pro software, you will have access to actionable information about properties that will be hitting tax lien auctions in the future. 

You really need to see how this software works and how it can help by pointing out where you should be pursuing tax deed applications. To schedule a demonstration of Marketplace Pro software, we invite you to contact our offices today.

About The Author


United Tax Liens is a group of experienced, active investors providing everyday people with access to one of the best Real Estate Investment vehicles available today.

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