Buying Colorado Tax Liens

Introduction

Colorado is a tax lien state. Colorado tax liens are perpetual liens and have priority over all other liens until property taxes are paid in full, or properly foreclosed as stated in the Colorado Revised Statutes. There are 64 counties in Colorado.

The interest paid on tax lien certificates is based on the Federal Discount rate on September 1 of each year plus 9 points. The Federal Discount rate on September 1 of 2008 was 2.25 percent. Adding the 9 points, the maximum interest rate earned on tax lien certificates for 2009 is 11.25 percent.

Property taxes for Colorado residents are payable in two installments. The first installment is due January 1 for taxes assessed for the previous year. The first installment becomes delinquent on February 28. The second installment is due on June 15 and becomes delinquent on July 31. The county treasurer and/or sheriff will make one or two phone calls to property owners who remain delinquent on their taxes. Property taxes that remain unpaid will be listed in a newspaper publication for four weeks prior to the tax lien sale. County treasurers are allowed to hold tax lien auctions between September 1 and the second Monday in December. Most counties hold their sales in late October or November.

Tax Lien Sales

Most Colorado tax lien sales use the Premium Bidding method. The opening bid for each property equals the tax owed plus interest and other related county costs. The auction is oral and competitive. The bid amount can increase in increments of $1, $ 5, or more, depending on the amount of the lien and the Treasurer's preference. The investor willing to pay the highest price for the tax lien certificate will be the winner. The winning investor pays a "premium" (the amount over the opening bid) for the tax lien certificate. The purchases is not reimbursed for the premium amount, and interest only accrues on the opening bid amount. The county captures the benefit of the premium.

There are a few smaller counties in Colorado that use the rotational bid process. In rotational bidding, each investor that is registered for the sale will receive a bidder number that will control the order in which they bid during the auction. The opening bid as well as the interest rate remains constant. The auctioneer will begin with the first investor and ask if they are interested in investing in the first tax lien certificate. If they want it, they will become the successful bidder and then the auction moves to the next property. If the first investor didn't want the property, it is offered to the second bidder, third bidder, and so on, until each property is either sold, or offered to everybody in the room and there are no takers.

Some counties require a deposit prior to the sale in an amount equal to the amount you expect to spend. Should you exceed this amount during the sale, your ability to purchase a tax lien certificate will be suspended until an additional deposit is made.

After the Sale

Successful bidders are awarded a Certificate of Purchase, or CP, as evidence of the tax lien assignment. The investor owning the previous year's tax lien now has the opportunity to attach this new delinquency to his/her pre-existing lien. This process is known as sub-taxing. The cost of a sub-tax equals the amount of delinquent tax due, and is available exclusively to the CP holder, some four months prior to the fall auction. This new amount will now begin to accrue 11.25 percent simple interest (based on 2.25 Federal Discount Rate). Redemption for the property owner becomes more difficult as they now owe twice the original tax amount.

The redemption period is three years, and starts on the day that the tax lien is first offered for public sale. The property owner has three years to redeem on the property. After the redemption period expires, the holder of the CP has the right to apply for a Treasurer's Deed and foreclose on the property.

The administrative action to foreclose on a property in Colorado takes approximately six months. The average cost of title work and processing fees vary from county to county, but average around $800.00. The property owner may still redeem during the foreclosure process, but he/she is now liable to reimburse the CP holder for any and all costs incurred during this process. If a CP holder is successful in the foreclosure process, the filing of a quiet title action is recommended in order to perfect the title

Colorado tax lien certificates are said to be in good standing for a period of eight years from the date of issue. If no action is taken to perfect the lien before the end of the eight-year period, the certificate is voided and the tax liability is abated.

Assignment Purchasing

Parcels that are not purchased at a public auction become available "over the counter". These sales are also referred to as Assignment Purchasing. Parcels usually become available one to two weeks after the close of the sale (auction). For more information, you should contact the County Treasurer's office, or do some investigation on the county's Web site.

Are you looking for a better way to invest your money in 2009 and beyond? Or maybe you are just looking to make a little (or a lot) of extra money on the side? Then, you owe it to yourself to find out more about tax lien and tax deed investing.

If you've heard about what a great investment tax liens and tax deeds are, but you just haven't done anything about it because you don't know where to begin, click the following link to hear my story and let me introduce you to the exciting world of Tax Lien Investing.

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Profit From Purchasing Tax Liens

Tax liens are the taxes collected by the government from residential and commercial properties to be used for road repair, pay law enforcements or any programs funded by the county. There is also a part on your mortgage payment where it goes to your property taxes each year. But some property owner would prefer to pay for it separately especially if they're already done paying for their mortgage, so they should be accountable for the yearly tax payment.

Each county are getting these tax notices each year and for those who fail to pay their taxes will be considered a delinquent taxpayer. This will give the government the right to set a lien against your property and lien certificate will be put up for sale. Then, the highest bidder will have to pay the unpaid taxes and will be given the authority to collect the payment with the interest or penalty only. That means purchasing tax liens will only give them the right to collect taxes but not really have any rights when it comes to the property itself.

When purchasing tax liens certificate, it is vital for you to understand how the system works before you go and make the bid in any auction. Sale on tax lien properties normally requires a deposit of ten percent in the form of a certified check. So when some bidders will want to get their tax lien certificate, they will receive it by mail. However, these policies vary from state to state or county.

The owner will have to pay at the allotted time plus the interest accrued to the tax lien certificate holder. It is also imperative for the investors who are purchasing tax liens to know if there is a possibility of owning the property. Some state allows the lien certificate holder to foreclose the property if the owner will not be able to pay until the redemption period, so this will give them an opportunity to claim full ownership of the property.

However, most homeowners will do everything they can to raise funds just to pay their owed taxes and save their property from being foreclosed. So there is a higher rate for these loans being paid. In which case, this will still be a win-win situation for the investors. If the loan will end up being paid, they will have the full amount they invested plus the interest set by the government at the time of the lien certificate auction. If not, they can have the property. And these make purchasing tax liens profitable and a good strategy for real estate investors who want to own a property at a fraction of their worth.

You need to make sure that you have made your research and preparation before you enter the tax lien auction if you want to consider this type of investment. You may as well attend the actual bidding so you can properly observe and ask the other investors on how the system works. They can exchange ideas and give you some pointers on what to do and what to avoid.

You may also ask other real estate tax lien professionals you know or attend seminars, or search more information online to give you detailed tips when purchasing tax liens and how it will benefit you. Just make sure you understand the pros and cons before you go into the real auction or invest in real estate.

Claud Pearce is an active real estate investor based in Cincinnati, Ohio. He is a member of the Greater Cincinnati Real Estate Investors Association and works exclusively with investors who want to grow, learn and succeed at real estate investing. Get more information now at http://www.cincinnatireia.com.

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