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by Mark Manoil, August 2, 2010

The Arizona attorneys’ fees and costs law in property tax lien foreclosures was amended in this year’s legislative session. The new version, which took effect July 29, provides that if a person who redeems a delinquent property tax lien became an “owner” of the property after tax lien foreclosure commenced, and a notice of pending litigation was recorded, then that person is liable even if not formally served in the foreclosure.

We believe it will reduce tax lien buyers’ risk of stranded legal expenses in the foreclosure action, particularly when third parties attempt to circumvent the tax lien investment and foreclosure process by acquiring a deed from the delinquent property owner, and then redeeming the tax lien, also known as “title-raiding.”.

As the Senate Fact Sheet for SB 1287 explained:

Currently, tax lien holders can recover reasonable attorney fees during the foreclosure process. However, when a property is sold to a third party after legal proceedings have begun, the new owner can claim that he or she was never served with notice of the lawsuit. The tax lien holder who has begun the foreclosure is then held responsible for the legal fees. S.B. 1287 requires a person who redeems the tax lien after a notice to foreclose has been recorded to pay reasonable attorney fees.

Senate Fact Sheet for SB1287, 49^th Leg. 2^nd Reg. Sess.

Here’s the amendment from the bill that was passed and signed by the Governor:

Sec. 3.  Section 42-18206, Arizona Revised Statutes, is amended to read:

42-18206.  Redemption during pendency of action to foreclose

Any person who is entitled to redeem under article 4 of this chapter may redeem at any time before judgment is entered, notwithstanding that an action TO FORECLOSE has been commenced, but if the person who redeems has been served personally or by publication in the action, OR IF THE PERSON BECAME AN OWNER AFTER THE ACTION BEGAN AND REDEEMS AFTER A NOTICE IS RECORDED PURSUANT TO SECTION 12-1191, judgment shall be entered in favor of the plaintiff against the person for the costs incurred by the plaintiff, including a  reasonable attorney fee FEES to be determined by the court.

Arizona property tax lien investors owe a round of thanks to Arizona’s county treasurers, who included this provision in their omnibus bill for the session. The anticipated effect of the law will be enhanced protection for these participants in Arizona’s local tax collection process.