March 20, 2009

Statutes of limitation provide a finite time in which to bring suit on a claim, and after that period, the claim is barred. In the tax lien context, the certificate of purchase “expires” if not timely enforced.

Arizona has three different statutes pertaining to limitations on foreclosure of property tax liens. Multiplicity of statutes is the result of different legislative sessions treating the subject of tax lien expiration prospectively first (i.e., not applying to already-issued tax liens), then retrospectively. Because there are differences among them, the statutes create both redundancy and ambiguity.

Prior to 2002, there were no statutes of limitations on property tax liens in Arizona, and such liens existed until they were either redeemed, foreclosed, or abated by action of the Treasurer or County Board of Supervisors. A.R.S. § 42- 17153 , § 42-18124 , and § 42-18351 .

County Treasurers argued at the legislature that this infinite duration of tax liens created a problem in their record keeping. Tax liens on marginal parcels were never being administered, they said, thus a record keeping burden had developed with respect to them. The proposed fix was a seven-year statute of limitations to apply to all liens, both previously issued as well as those to be issued in the future.

Legislators heeded the concern of some investors, however, and adopted the first statutes of limitation to apply only to liens sold after the effective date of the legislation (August 22, 2002), and agreed to extend the period for foreclosure to ten years, plus allow for extending the limitation in the event a bankruptcy or other court action that might temporarily prevent foreclosure. Also, a procedure was adopted in the statute to require the Treasurer to give advance notice of impending expiration of the tax lien, and then a confirmation afterwards that the lien had been extinguished. Last, the tax lien could be saved if a foreclosure or 30-day notice of intent to foreclose was initiated prior to the threatened expiration date.

The time for expiration would be counted as ten years after the last day of the month in which the lien was acquired by the tax lien investor.

This was the law as written into sections 42- 18127 and 42-18201 .

In 2003, the Treasurers returned to the legislature still seeking a vehicle for cleaning up old tax liens on their books. Without the same investor representation as the year before, an additional statute of limitation was adopted, applying explicitly to tax liens purchased “on or before August 31, 2002.” Under this later statute, A.R.S. § 42-18208 , the tax lien would expire ten years from the date that the lien was purchased. Because of its intended retroactive application, upon its statutory effective date, there were liens already more than ten years old. One question raised among investors and lawyers working in this area was whether the statute would have the immediate effect of invalidating such old tax liens. But the newer statute also included a notice requirement, that at least 6 months before the tax lien was to expire the County Treasurer would have to notify the lienholder by certified mail as well as post notice on the Treasurer’s website and on the outer door of the office of the Treasurer. Because of the notice requirement, most reasoned that the statute was not self-executing, i.e., the tax liens would not expire automatically without some form of administrative action by the treasurer’s office.

To my knowledge, no investor has challenged the retroactive- application statute, on the basis of interference with contract or deprivation of property rights without due process or any other theory, probably because the tax liens involved were marginal to begin with and no investor holding such tax liens would want to commit to the legal expense of mounting such a challenge.

As we approach 2012, however, when the first-enacted statute of limitations will start to apply to liens purchased ten years or more earlier, there should be some attention paid to harmonizing, if not consolidating the several statutes of limitation.