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.
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