To what extent do property taxes affect HOAs? Common concerns with property taxes are something that many associations deal with. Read on to learn more, as we will be discussing all the taxes HOAs need to pay.
Taxes Paid on Common Area Property by an Association
Residents own common areas in master-planned communities in Arizona. Upon turnover, the Declarant typically deeds the joint space to the Association. As the owner, the association is responsible for paying property taxes on the common area parcels and managing and caring for such areas.
An association can often request that the County Assessor value all common area parcels together as “Residential Common Area.” Common area parcels are assessed at a significantly lower rate of 10% of their value, or $500.00 than their market value would otherwise be.
What happens if an association does not pay the property taxes owing on common area parcels?
State tax liens are auctioned when property taxes are delinquent, including Residential Common Areas. Each year, in February, a public auction is held to sell off tax liens from the previous year. The sum of taxes and interest that must be paid at auction. The bidder with the lowest interest rate will be selected as the winner. The successful bidder will obtain a “tax lien,” which can be foreclosed upon.
After three years from the sale date of the tax lien, the lienholder may initiate foreclosure proceedings. Tax liens are no longer valid after ten years from the date of sale. If the tax lien holder sues for foreclosure and the taxes are not paid, the tax lien holder will acquire a Treasurer’s Deed and then own the piece of common property in question.
Tax Claims Against Homeowners’ Assets
Unpaid property taxes are another prominent example of a tax lien that can impact an Association.
Associations in Arizona have a statutory and contractual lien for unpaid Assessments and other sums under Arizona law. This means the association can foreclose on its Assessment Lien to recover unpaid Assessments from a property owner.
If a Lot’s owner defaults on one or more years’ worth of property taxes, the lienholder for those years can foreclose on the liens and take ownership of the property. The state sells tax liens on private property at auction using the same procedure described above.
In the event of a successful foreclosure by a tax lien holder, the association’s Assessment Lien would be released. This means that the association’s lien would be “wiped out,” and the association would likely be limited to collecting late sums from the owners directly.
A tax lien holder may foreclose on a property if the association fails to “redeem” or pay the delinquent taxes. The tax lien will be removed from the property’s title once the delinquent taxes and interest have been paid in full. The association’s lien will continue to exist, and the individual owner will continue to be the legal owner of the property.