Arizona Subsequent-Tax Purchases (Sub-Taxing)

Buying an Arizona tax lien is rarely a one-year decision. When the next year's taxes go unpaid on the same parcel, you can pay them and roll them into your certificate. Arizona investors call this sub-taxing, and it is the mechanism that turns a single certificate of purchase into a position you can carry for years. If you plan to hold liens in Arizona, this is the move that protects them.

What sub-taxing does

Two things:

• It keeps you first in line. If you do not pay the new delinquency, it goes to the next February sale and another investor can buy a lien on your parcel. Sub-taxing removes that opening and keeps your position senior.
• It puts more money to work at your rate. The subsequent taxes you pay earn interest just like your original certificate.

How the rate works

Under A.R.S. 42-18121, subsequent taxes bear interest at the rate stated on your original certificate, running from the first day of the month after you pay, plus a small recording fee. That detail is easy to miss and it cuts both ways:

• If you won your certificate at the full 16 percent, your subs also earn 16 percent.
• If you bid the rate down low to win a parcel you wanted, your subs earn that same low rate. A 4 percent winning bid means 4 percent on every subsequent year too.

This is one reason seasoned bidders do not always chase a parcel down to a token rate: the rate you accept follows you through every year you sub-tax. Model a multi-year hold in the tax lien yield calculator.

When to sub-tax, and when to let it go

Sub-taxing makes sense when you still want the position: the parcel is one you would be comfortable foreclosing on, or you expect redemption and want to keep collecting at your rate. It makes less sense when the rate is low and you no longer want the underlying land, because you would be adding capital at a thin return with no interest in owning the parcel.

The decision ties directly to the three-year foreclosure clock. Carrying a lien toward a treasurer's deed usually means sub-taxing each year so no gap lets another lien jump ahead of you. If you have decided to walk away, stop sub-taxing and let the position redeem or lapse.

For the full Arizona cycle, see how Arizona tax sales work and the buyer's steps in how to buy tax liens in Arizona. For realistic expectations on what any of this returns, read realistic tax lien returns.