Arizona’s property tax law abuse must end

Jim Boerner, a disabled veteran in Mesa, Ariz., recently landed in the headlines after losing his home over $236 in unpaid property taxes. Boerner had tried to pay off his property tax debt to the county but was given wrong information and therefore failed to save his home from the auction block. An investor bought the property for $4,400 and offered to sell it to him for more than $26,000 or face eviction.

While Boerner’s situation was horrifying, he was lucky that the media picked up his story. The public scrutiny prompted the county to pledge to save Boerner’s home.

Unfortunately, other Arizonans aren’t so lucky.

According to The Arizona Republic, 1,734 people in Maricopa County lost their land between 2010 and 2017 for unpaid property tax debts that sometimes were as small as $50. Hundreds of these properties contained primary homes. These owners lose not just their homes, but all their equity in them.

When government auctions personal property (such as mobile homes) to pay unpaid property taxes, Arizona law returns the extra profits to the former owner. If the county failed to save Boerner’s home, he at least would have a right to demand that the county give him the profit from the sale, after the county applied the $4,400 in proceeds to his tax debt. Although little comfort to someone who has just lost his home, it is better than nothing.

But when Arizona counties take land for unpaid taxes, even if it has a home on it, the former owner loses everything.

Arizona’s laws invite investors to bid on the right to collect property tax debts by competing to charge the lowest interest rate on the debt. Then, if the owner fails to pay their debt on time, the investor takes full title to the property, free and clear. In short, if you fail to pay property taxes on your land and its improvements, counties will give your nest egg to a private investor for pennies on the dollar.

This practice of home equity theft, although allowed by Arizona’s property tax law, is as odd and foolish as it is unconstitutional.

Most states manage to collect delinquent property taxes while still protecting the owner’s equity in their home and land. For example, Florida counties sell tax-delinquent properties to the highest bidder via an online auction. The proceeds first pay off what’s owed to the government and to investors who essentially lend money to the county in exchange for the right to collect interest on the underlying debt. The remaining money goes back to the former owner.

Returning this surplus to the former owner is a traditional practice employed in the colonies and at the founding of this nation. Consistent with that practice, the Constitution forbids excessive fines and demands that when the government takes your property, it must pay “just compensation.” Logically, that means government should collect from you only as much as you owe, plus reasonable penalties. Extra profits should be returned to the former owner. Arizona — and a few other states — are collecting their debts and giving the rest to private investors.

This theft must end.

Montana recently proved that political solutions are possible. In May, Montana’s governor signed a reform law that passed the legislature with overwhelming bipartisan support. The law will protect most homeowners’ equity when their property is taken to pay property tax debts.

Other states may have to learn the hard way. The Michigan Supreme Court granted review of a case where one owner lost his rental home when he accidentally underpaid his property taxes by $8. The county sold the property for almost $25,000 and kept all the profits. If that court, or the U.S. Supreme Court, recognizes this practice is unconstitutional, as several other courts have recognized, then counties soon may find they are liable for a huge tab of stolen home equity in hundreds (or thousands) of similar cases.

Arizona’s legislature should take note and restore property rights by protecting property tax debtors’ equity. As Boerner’s story demonstrated, Americans expect better treatment from their governments than what has become common in Arizona.

Christina Martin is an attorney for Pacific Legal Foundation, representing Uri Rafaeli in his Michigan Supreme Court challenge to end home equity theft. Follow her on Twitter @CMM123.