edBy Ed Montgomery

During my real estate investment career I have been asked many times how property tax liens work and if they are a good investment. In this article I will try to explain what I have learned in the 15 years I have been investing in tax liens.

In the state of Colorado, usually during the fall, each county treasurer’s office identifies the property owners in their county that have not paid the property taxes that were due for the previous tax year. The treasurer’s office then creates a listing of these properties to be published in the local newspaper or viewable at their online auction website. The treasurer’s office will also provide brief information to the public on how to bid on these liens, how to endorse the liens for future years, how to apply for a treasurer’s deed, and what interest rate the successful purchaser will earn on the liens. The annual interest rate is set by the state of Colorado (in 2015 it was 10%).

After a purchaser has identified which tax liens they would like to bid on they have to register and provide income tax information to participate in the auction. All prospective purchasers should make sure they are familiar with the properties they are going to bid on and understand the total amount of what they will owe if they are the successful bidder. This will be the amount of the property taxes due, plus the premium amount that they bid at auction. If the owner of the property that you have the lien on pays it off within a short period of time you could lose the premium you paid at auction. If the lien is not paid you will earn interest on the taxes you paid but not on your premium. If the owner of the property fails to pay the taxes on subsequent years the treasurer’s office will send you a notice to “endorse” those taxes without having to bid on them again at auction.

After you have held the lien for three years you can apply for a treasurer’s deed to the property. The owner of the property is notified and given numerous opportunities to catch up their back taxes and pay the lien holder their investment plus interest. If the property owner does not pay their taxes by the due date set by the treasurer, the lien holder is awarded a “Treasurer’s Deed” to the property. The lien holder now becomes the new owner of the property and they are responsible to pay the property taxes. Although the lien holder owns the property now, they do not have what is considered “marketable title” to the property. What this means is that they cannot purchase title insurance for the property and it must be conveyed via a quit claim deed if they sell it. The title to the property becomes marketable if they wait nine years or they can perform a legal action call quieting the title.

Please contact Deer Creek Realty with any of your real estate needs.

Ed Montgomery, Broker Associate, B.S. Business Administration
Deer Creek Realty
5060 County Road 64
Bailey CO 80421
Office 303-838-5377
Direct 303-895-7876