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Law Offices of Ronald W. Rutz
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October 10, 2004: Tax Liens

Q: I have been chastised for almost a year for not doing a column last October on the Larimer County Tax Lien Sale and thus failing to give a "heads- up" to the public and a chance to participate. So let us look at what is a tax lien sale.

A: If an owner fails to pay property taxes, the county will sell the "lien," thus obtaining the money immediately while the purchaser earns interest on the amount paid to the county. Yes, in the past the rate of interest has been as high as 15%, but this year the rate will be 12%. Larimer County will hold its sale on November 17th at the Larimer County Courthouse Office Building (1200 West Oak in Fort Collins). You can go to the web site for more details.

Now having a chance to invest money at 12% sounds great. But traditionally around 1200 property tax certificates are available for purchase with around 400 people attending the sale. With rotation bidding being used, during three or four hours of time spent at the sale, a person may only have 2 or 3 opportunities to decide to buy the lien or "pass."

It is possible to commit as little as a couple hundred dollars or, on the other hand, many thousand of dollars, depending on the amount of property taxes owed. It just depends on what property is next on the list when it is your turn to take or to reject the next available property.

But there is no guarantee how long the money will be invested. I did have money drawing 15% interest for several years but I also have had most properties redeemed within a few months after sale, and a few other tax certificates were paid off within days, thereby effectively reducing the 12% rate of return far below expectations.

Theoretically after three years of paying the annual taxes, and if the property has not been redeemed, a certificate holder can go through the process to obtain a "Sheriff's Deed," which makes the tax certificate holder the legal owner of the property by just paying the taxes for those three years plus the cost of getting the deed.

Few properties are ever obtained this way because, for example, the mortgage company will step forward and pay off the amount to avoid losing its lien on the property. Or someone will cut a deal with the owner, pay off the certificate, and obtain part or all of the property at a discount.

Even though many counties try to screen properties and hold back ones with problems, this is a "buyer beware" type of process. Although almost all of the time nothing bad in fact happens to the buyers of the liens, whenever taxes are not paid, remember there are reasons.

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Researching the properties is almost impossible. With rotation bidding, a person cannot bid for only certain parcels because the property available when it is your turn is purely by chance.

Many experienced tax lien sale attendees have their own guidelines on properties to avoid. For example, many will automatically pass on anything labeled "tract" because it might be too small for a building permit or not large enough for things like a leach field. The term "tract" might also suggest an oddly shaped lot or access problems. But then again, nothing may be wrong.

Often the existence of other liens raises red flags, especially if the lien is on a piece of property that was sold at a prior tax lien sale and the owner of that lien did not elect to pay the lien this time around (past purchasers have priority to buy the current lien before the sale). Successful bidders have found that their tax lien was on property with environmental problems (the cost of cleanup exceeding the property’s value), or in such run down condition that fix up costs would make it a money pit, or that the property had been seized by the government for illegal activity, all of which means the money spent to obtain the lien may never come back or securing title to that property would not make sense. Buyers have also later discovered ownership of the property was clouded because of ownership disputes or adverse possession claims. And although the tax lien usually takes priority, the holders did not want to get pulled into the dispute.

After the sale is over, the wise participants will examine their "properties" to see if there are problems. Some "investors" have had to walk away from thousands of dollars invested in a tax certificate because they did not want to take title to the property when the purchaser did become eligible to apply for the deed.

I do not want to discourage you, and yes, the vast majority of buyers have never had a problem. But you need to understand that even here putting your money down on a "parcel in a poke" carries possible risks and if the certificate is redeemed quickly may not be worth your time and trouble.


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