Tax sales: Nightmare ... and an opportunity

This article is reproduced from the Summit Daily News, September 16, 2009, by permission of author Noah Klug.

All real property in Colorado is encumbered by a tax lien for real property taxes until the taxes are paid. If the taxes aren't paid on time, the lien can be sold at a tax sale, and the owner can eventually lose his property. Here is an introduction to the tax sale process.

Property Tax Payment Schedule: The county treasurer sends owners tax statements early each year indicating the taxes due for the previous year. Owners have the option of paying the taxes in one payment not later than the last day in April, or in two equal installments on or before the last day of February and the 15th day of June. If payment is not made according to one of these options, the taxes are considered delinquent and pre-sale interest begins accruing at the rate of 1 percent per month. No later than September 1 of each year, the treasurer mails notices to owners who have not paid their taxes indicating the delinquent amounts and the date of the tax sale. The treasurer also posts the notices and publishes them three times in a local paper. (In Summit County, the first publication will occur on September 18, 2009, in the Summit County Journal, and the sale will commence on October 21, 2009.)

Conduct of sale: The treasurer sells each tax lien to the highest bidder at a public sale commencing on the date indicated in the notices. The minimum bid for each lien is the taxes due, plus the pre-sale interest and the treasurer's costs of the sale. Any liens that don't sell become “owned” by the government entities that levied the taxes. The treasurer issues a certificate after each sale naming the new owner of the lien.

Effect of sale: After the tax sale, the owner of the property retains all normal rights in the property, but the property is encumbered by the tax lien, which has priority over all over liens. The holder of the certificate can pay the taxes in subsequent years to prevent new tax liens from encumbering the property, and these amounts are then added to the amount of the lien. The holder of the certificate can also sell or assign his certificate to other parties.

Issuance of tax deed: If the taxes remain unpaid, the treasurer can issue a treasurer's deed for the property to the holder of the certificate three years after the tax sale. Upon receiving a tax deed request from the holder of the certificate, the treasurer gives a notice to persons with interests in the property and publishes the notice in the local paper. The notice must be given not more than five months or less than three months before the treasurer issues the deed. If no one redeems the property before the date given in the notice, the treasurer issues the deed to the holder of the certificate, who then becomes the new owner of the property free and clear of all liens.

Redemption: The holder of the certificate earns post-sale interest on the lien at a specified rate, which is currently 9.5 percent. The owner or any lienholder can redeem the property at any time before the treasurer issues the deed by paying all amounts due to the holder of the certificate, including the amount bid at the sale plus certain allowed costs and post-sale interest. Redemption does not transfer title to the person redeeming; it only prevents title from transferring to the holder of the certificate.

For those unfortunate owners who lose their properties following a tax sale, tax liens are a bad deal; but, in some cases, purchasing tax liens can be a reasonable investment for patient investors.

Noah Klug is an attorney with the Breckenridge law firm of Bauer & Burns, P.C. He may be reached at (970) 453-2734 or Noah@BreckenridgeLawer.com. This article is intended as a general overview; consult an attorney for advice on your particular situation.