Property Taxes In Maricopa County Az - Patricia Miller talks about losing her father's house in West Phoenix because $808 in property taxes was not paid.
This was the home where Devoe Poleeson, the family's proud cook and grill master, taught his daughter how to fry eggs. This was the house where she set the oven timer to wake the kids up for school before she left for work. And it had been the family get-together - for Christmas parties, weddings, even wakes - for four decades while she lived in a modest home in West Phoenix.
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The mortgage has long been paid off. But in 2010, a decade after Poleeson's death, a Utah investor legally foreclosed on the house for just $808 in unpaid property taxes.
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"It was tragic for us, for our family, because ... we grew up in this house and all our memories are there," said Patricia Miller, Poleeson's daughter. “It was a loss that we didn't really know what to do with. There just wasn't enough insurance money to cover everything."
The flurry of foreclosures that devastated the Arizona real estate market after the 2008 crash took place as thousands of homeowners defaulted on their mortgages. But since then, other homeowners have faced their own foreclosure crises, quietly losing their homes at a rate that only peaked in 2015.
In recent years, tens of thousands of people have faced foreclosure due to property tax arrears. Like Miller, hundreds of these people lost their homes and all their possessions - not to the bank or local authorities, but to private investors.
Homeowners who only owe Poleeson $808 in taxes -- sometimes as much as $50 or less -- may have other investors or banks buy out their debt. Through the so-called "tax lien", these investors can recover not only the debt but also the compound interest.
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A review of over six years of Arizona tax lien foreclosures shows that hundreds of thousands of state property tax liens have been paid off avoiding foreclosures. And a closer look at Maricopa County reveals that many tax liens have occurred on vacant lots.
But more than a third of foreclosure cases - 1,734 in Maricopa County since 2010 - are primary residences. This means that 642 homeowners lost their homes and all their capital.
"When you're successful in foreclosures, you usually find them ... in depressed socio-economic neighborhoods," said Barry Becker, a prominent local attorney who owns his own tax liens investment firm. “No one is losing their home in Paradise Valley. Very few people are losing their home in Scottsdale."
Many cities and counties around the country are selling tax liens, and the system has an immediate public benefit. Investors immediately pay their back taxes, which means property tax revenue goes back to counties that counted on it in their ever-shrinking budgets.
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But because the system allows investors to grab the interest or take home, some say it distorts the government's duty to help taxpayers who may be in the biggest trouble.
"This is a very bad and draconian way of enforcing taxpayer compliance, and we should never lose sight of the threat behind the tax lien that you will lose your property and all its capital," said Andrew Kahrl, a professor at the University of Virginia. who studied the history of the tax lien industry across the country. “Cases where people lose their homes because of a small amount of unpaid tax should give lawmakers pause. It's rare, but it happens more often than people want to realize."
When a property owner is in arrears with taxes, the county treasurers place a lien on the property with property taxes back. If the taxes remain unpaid after two years, the treasurers sell the liens to investors, who then pay the back taxes, recouping the money the county needs.
Investors who bid on these liens buy the right to collect taxes - at interest - and lose property if the owner does not or cannot pay within three years.
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Outstanding taxes do not make up a large part of the county's budget, but the amounts are still significant. In 2016, Maricopa County recovered nearly $17 million in unpaid taxes through pawn auctions, although this was less than 1 percent of the county's $2.2 billion budget for that fiscal year.
In interviews, several county treasurers noted that tax lien auctions benefit both taxpayers and homeowners. The municipality will get what it owes. In fact, delinquent taxpayers also benefit: As long as the county holds the lien, the delinquent taxes are charged at 16 percent annual interest. However, buyers can also offer a lower interest rate - generally those who are willing to charge the property owner less interest win the bid.
The lien buyer may receive an interest rate well below 16 percent, but the tax lien is almost guaranteed to turn a profit. The property owner either returns the tax plus interest, or the investor takes over and sells the property.
In addition, tax liens take precedence over most other types of debt, including bank property when owners default on their mortgages.
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When investors take over a home, they can often sell it quickly for a huge profit, as was the case with the Poleeson home.
After his death in 1999, his four children struggled to sell the house because he had not left a will. Property tax was paid in stages. In 2007, their tax lien of $808 from 2004 was auctioned off. The family is then obliged to pay the investor the outstanding tax plus 16 percent. annual interest.
This investor took over a house in the 3500 block of West Earll Drive in Phoenix in 2010 and sold it for $16,000 when the real estate market was near the bottom. Eight months later, the house was sold again for $54,900.
Maricopa County tax foreclosures peaked in 2015, with investors foreclosures of approximately 400 properties, ranging from vacant lots to mobile homes in Glendale to condominiums in Phoenix and homes in Buckeye.
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According to Kahrl, a professor of tax lien, it is common for property taxes to slip through the cracks in these cases.
"If you have a husband who takes care of your family's finances ... a year after that person's death, along with all the other things he does, you miss property tax," she said.
Tax lien sales have long been a niche industry, but in recent years the pool of investors affected has shrunk in Maricopa County. Traditional buyers have been displaced by large financial institutions, which now buy pawnware at auction in large quantities. Winning bids have plummeted, making all pledges less profitable for investors and crowding out smaller companies who can't afford to buy in bulk.
"Small investors like to receive a lien with a lot of interest," said Eric Kessler, one of the top attorneys representing foreclosure investors. "Historically, you can expect an 8-10 percent return on investment if you buy enough pledges."
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But five or six years ago, Kessler said, big banks and other big investment firms came in and lowered mortgage rates.
One such smaller investor was Stan Harrison, who ran a small company based in Oklahoma that invested his and his family's money. He had been buying crockery in Maricopa County for years, nearly 200 in 2010 alone, but soon abandoned the entire industry for good.
"When I first got involved in tax liens, the big banks weren't involved," he said. “Because of the low interest rates in our economy, they were forced to go where the best rates were, so they got heavily involved in tax liens and were able to flood the bidding. They basically pushed out guys like me. ... The big banks now reign."
In 2010, the Maricopa County Tax Lien Auction had over 535 bidders. By 2016, there were less than half of them – 208.
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According to Kessler, the arrival of large banks has changed the focus of the pawn business, as lower interest rates mean that large profits can only be made by foreclosure on a single property.
“Most investors are big funds,” he said. “Many investors pump millions of dollars into mortgage investments knowing they will hold them for three years. Basically, they are willing to buy underperforming assets - less than 2 percent of the pledge - on a large scale just to hold onto them until then. They can close access.
In Maricopa County, where bidders have easy access to online auctions, 74 percent of winning pledge bids came from out-of-state investors, according to an analysis of 2010-2016 auction results. Some investors from Canada, and in 2012 an investor from Singapore, bought five tax liens at auction.
Even though investors from all over the country and the world buy Maricopa County tax liens, the largest buyers are a select community of large investors. So are their local lawyers.
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The same four attorneys - Becker, Kessler, Heather Hendrix and Mark Manoil - represented investors in 83 percent of Maricopa County enforcement proceedings.
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