Tuesday, April 19, 2011

County Tax Sale Certificates Add Adventure and Excitement to Investment Portfolios and Potentially Might Provide Your Own Acreage for Rock and Mineral Collecting

Colorado Tax Sale Property

IN COLORADO ALL REAL PROPERTY taxes must be collected each year in order to meet the budget obligations of all taxing authorities in each Colorado County. To meet this task, every County Treasurer in Colorado holds an annual “Tax Lien Sale” each fall to collect the unpaid real estate taxes ("Gunnison County Treasurer").

The author’s tax lien was foreclosed on by the County Treasurer after the author held the certificate and paid the taxes for three years. The Park County Treasurer posted this property to provide notice that a treasurer’s deed was about to be issued.  In this case, a deed was issued to the author just a few weeks later to this acreage.
This is done at a public auction where investors pay the delinquent real estate taxes and obtain a tax lien certificate. This certificate creates a tax lien against the property, and if held for three years by the investor, can result in the transfer of the real property to the tax sale investor. By attending County tax sale auctions, the investor may end up with acreage that has Indian artifacts, collectible rocks and minerals, or just a nice place to come and have a picnic and one day build a cabin. Tax lien certificates are excellent investments and should be given serious consideration as part of an investment portfolio. As with any investment, tax sale certificates should be explored to see if they are a good investment for you.
It is important to realize that the property is not being sold at the tax lien sale auction—just the taxes. The amount of the individual tax lien purchased includes the tax, delinquent interest (through date of auction), advertising fees, and certificate fees.

Advertisement of Tax Liens for Sale
The list of tax liens available for purchase is advertised for three consecutive weeks prior to the sale in the legal section of the county newspaper. A list of the tax liens is also available from the local Treasurer’s office. Before investing in tax liens, it is a good idea to get a map of the subdivisions located in the County from the County Assessor or a local realtor. This map helps the investor obtain tax liens in more desirable areas of the county.


Tax liens can be issued on mining claims, section land described by meets and bounds, and land inside a subdivision. Tax liens can also be on city lots, homes, buildings, and commercial real estate. This tax sale parcel has outcrops of chert and jasper.  There is evidence of Indian occupation in the area, and a scattering of chert, jasper, and quartzite revealed arrowheads and other stone tools were made here.
Registration
Investors must register before the tax sale and fill out a registration form and a W-9 with their social security number or tax identification number. The registration form must indicate the exact name in which the tax certificate is to be issued and the mailing address of the investor.

The Bidding Process
The bidding process varies by county. Some county treasurers might use a round robin process where buyers are offered the opportunity to purchase tax liens on homes, city lots, ranches, U.S. mineral patents (gold and silver mines), commercial real estate, and various sizes of acreage in rotation; or in another county, the treasurer will allow an open auction where investors offer to pay the tax lien plus pay a premium for the right to pay those taxes. Any amount paid for property above the taxes due is known as a “premium” and goes directly to the county general fund. Premiums are not part of the tax lien, do not collect interest, and are not returned to the buyer when and if the taxes are paid.

Tax lien sale certificates earn interest at a rate of 9 points above the Federal Discount Rate as of September 1st of the year of sale (“Colorado County Treasurers Association”). In 2010 tax certificates earned 10 percent interest. The bidding process, details, and important county tax sale information can be looked up on the Internet for each Colorado county. The dates set for the County tax sales can easily be found at the Colorado County Treasurer’s Association’s website  (http://www.e-ccta.org/CCTA/tax_sales.htm. ) Many counties provide coffee and a variety of pastries for tax sale investors, at some counties these treats are free, and at some counties they are sold to benefit a nonprofit group.

Payment After the Auction
Payment must be made immediately following the sale. Payment can be in the form of cash or a cashier’s check drawn on a Colorado bank. Some County Treasurers allow a personal check to be used. Successful bidders are issued a “Tax Lien Sale Certificate of Purchase “for each property that they were the successful bidder on. Originals are kept in the Treasurer’s office and a copy will be mailed to the investor in approximately two to four weeks after the sale.

After The Sale
Plat maps of properties can be obtained from the Assessor’s Office if the investor wants to investigate the tax lien property. Investing in tax lien certificates can bring the investor into areas of Colorado counties that the investor might not otherwise visit while locating tax sale properties. It is important to note that the tax lien certificate has no property rights. It is only a lien and does not allow the tax lien holder the right to go on the property. The investor can, however, drive to the property and look at it from the road.

If the owner of the real property does not pay the taxes the following year, the taxes become delinquent and the holder of tax lien certificates will be sent a notice in July or August, and will have first option to pay (purchase) the current year’s unpaid tax lien at that time. These subsequent taxes earn the same interest rate as the certificate rate and begin accruing interest upon receipt of the payment.

Redemption of Taxes
If the owner of the property redeems their tax lien, (i.e., pays their taxes), the tax lien investor will receive a check from the Treasurer’s office which will include the taxes, fees and interest that was purchased at the sale, together with interest that has accrued from the day of the sale to the date of redemption. It is important to remember, the investor will not be refunded any premium bids that were paid. In January the investor will be sent an IRS form 1099 for any interest earned for the year that the tax lien certificate was redeemed.

Treasurer’s Deed
Three years after the date of the tax lien sale, the tax sale lien buyer may apply for a treasurer's deed to the property if redemption of the lien is not received. The application process ranges from five to six months. If the delinquent taxes are not redeemed by the owner, the investor will receive, via certified mail, a treasurer’s deed to the property.

View from recent tax lien property that was transferred to an investor via a treasurer’s deed. To maximize your tax lien, be sure to pay each following year’s taxes. This is known as subtaxing or endorsing subsequent tax years on the tax lien certificate.
The author recently received a treasurer’s deed to 28 acres in Park County. In March he received a treasurer’s deed for five acres and in April another one for three acres. He has a tax lien on a gold mine near St. Elmo in Chaffee County that he has been paying taxes on for more than three years and can file for a treasurer’s deed. Taking title to mining properties brings a unique set of potential problems to the investor and should be avoided unless the investor has mitigated all of the risks associated with owning a mine.
Purchasing delinquent tax liens at sale is becoming an increasingly popular form of investment. The interest earned is an attractive return on the investment made in tax lien certificates. If the tax lien certificate is not redeemed by the property owner, the investor will receive a treasurer’s deed to the property. The investment can be thought of in terms of a potentially long range C.D. secured by real estate. This investment, unlike most, is fun. It can take you to new places you have never been, and if you are lucky, obtain a treasurer’s deed to Colorado land than might have interesting rocks, minerals, or fossils.

References Cited:

Colorado County Treasurers' Association and Public Trustee Association of Colorado. (n.d.). Retrieved from http://www.e-ccta.org/

Gunnison County Treasurer Tax Lien Sales. (n.d.). Retrieved from http://www.gunnisoncounty.org/treasurer_tax_lien_sales.html

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