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Arizona Real Estate: Finance & Property Taxes

Instructor: Kyle Aken

Kyle is a journalist and marketer that has taught writing to a number of different children and adults after graduating from college with a degree in Journalism. He has a passion for not just the written word, but for finding the universal truths of the world.

In Arizona, real estate property tax rates and financial documents can be complicated. This lesson starts with understanding how effective property tax rates are used to compare the tax burden across the state. Property tax concepts, foreclosure, financing documents and escrow are also explored in detail.

Effective Tax Rate Variation

Whether buying or selling, the real estate industry is full of nuances, pit falls, procedures, protocol, and ins and outs that need to be understood before making any final decisions.

In the United States, location is a strong factor that causes many of the differences in effective tax rates. The lowest tax rates are in the South, as they have a well-known tradition of not relying on real estate taxes for government revenue. However, when looking at certain geographic locations, there seems to be a lot of variation in the effective property tax rates across states. Especially in Arizona there is even some intra-county variation when it comes to the average effective real estate tax rates.

In addition to location, household income, home values, time of purchase, property tax exemption, and homes with children under 18 are all factors that impact the effective tax rate variation in Arizona. This lesson will dive deeper into the property taxation concepts, as well as take a look at foreclosure, financing documents, and escrow in Arizona.

Property Taxation Concepts

The property taxes are very affordable in Arizona when compared to many other states. In Arizona, property taxes are calculated based on the assessed value and not the current market value. Property taxes also vary depending on where you live in the state of Arizona, as schools, water districts, cities, community colleges, and bond issues all determine what your specific tax rate will be. However, on average the tax rate on homes before rebates and exemptions is between 0.87% and 1.5% of market value.

Real Estate and Foreclosure

In Arizona, when a lender needs to foreclose on a mortgage in default or on a deed of trust, the lender can use either a judicial or nonjudicial process. When it comes to the judicial process of foreclosure, it means filing a lawsuit to get a court order to foreclose. This process is usually used when no power of sale is present in the deed of trust or mortgage. On the other hand, a nonjudicial foreclosure happens when a power of sale clause exists. This clause allows the borrower to pre-authorize the sale of property to pay off the balance on a loan just in case they default.

Financing Documents

Arizona law requires that financial documents, including a deed of trust, mortgage, or contract for a deed are used to secure a lien on real property. The most frequent form of financial document used is the deed of trust, as it has the option for a non-judicial process, which includes the power of sale in the event of a foreclosure. This process is much faster than a judicial foreclosure. The deed of trust is an instrument that uses three parties, including:

1. The borrower or trustor/grantor

2. The lender or beneficiary/grantee

3. The trustee - an attorney, service agent of lender or title company

On the other hand, the contract for deed, which is referred to as the installment contract for conveyance of land, is barely used to secure a lien on real property. The contract for deed differs in that it gives the seller the title to the real property until they have paid the purchase price in full.

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