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Tax Liens & Mortgage Notes

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Will Sifert
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  • Covington, LA
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Big changes to the way Colorado handles it's tax sales

Will Sifert
  • Investor
  • Covington, LA
Posted Apr 7 2024, 08:54

As of July 1st, 2024 Colorado will be making a change from a traditional tax lien state to a system that is hybrid, more like Florida. I have glanced over some of the new law, from my initial interpretation the new system will:

- Premium bidding to win a tax lien, non refundable premium bid will remain the same.

- 3 year redemption period will remain the same.

- You no longer simply apply for a deed after 3 years and get it after the county attempts to find the owners. Now you would go through noticing requirements to schedule an auction. Property will be sold to the highest bidder at auction. Starting bid will include past taxes interest and county costs/ fees. * Your premium bid amount will not be included and not recovered. Any overbid amount at the auction will go to the property owner.

Here is the problem, almost all tax liens in Colorado were won by paying premium bids that were 10,20,30,50,100% or more of the lien amount, especially on vacant land and property that had a higher chance to redeem. Personally I have spent tens of thousands buying liens in Colorado over the last 3 years and have calculated the premium bidding as a cost that I would recover from actually getting a few deeds. I have lost thousands of dollars on premium bidding on liens that have been redeemed. I also have several deeds that have not redeemed and the profit I would make from selling those would more than pay for the cost to win those liens (premium bid amounts).  All of that has changed.... Now, instead of getting the deed and who knows what additional costs I will have to pay to initiate these auctions, I would have to bid against the public and pay more money to win the deed.

I hope Colorado realizes how  much this is going to cost them in tax sale revenue. Some of these cheaper vacant land properties get bid up 700-800% over the lien amount because there was a decent chance you could get the property .  I can't imagine anyone would premium bid more than 1 -2 % if any on these types of properties now.  Most years you only making 9% - 10% interest in Colorado.  Who is going to pay much of a premium when there is no chance to get the property?  If you are paying a premium to just win the lien to make interest, most redeem with in the first year so even on houses and properties that will redeem 99.9% of the time, who would pay more than a few % over for those because you are not going to make much in interest and if they redeem in the first couple months you will lose money on all of those.


For example, on a $100 lien I might have paid $50 premium on a vacant parcel of land that might be worth about 15-20K.   I knew if I bought enough of these I would get a few deeds.   Most redeem and at 9% interest I would lose anywhere from about $25 - $50 on each lien depending on how long it took to redeem. So now, after 3 years instead of paying about $400 to the county for a deed, I have to pay noticing costs and then go bid against other investors at an auction.  If I do not win or choose not to bid, I get back my $100 plus 27% interest (9% x 3 years).  So now instead of getting the deed, selling the property and helping to recover the losses from all of the redemptions, I end up still losing money on the liens that do not redeem. My only chance is that no one bids at the auction, if I wanted to bid at an auction I wouldn't have bought the lien and I would have gone to tax deed states... this sucks.

Thoughts..... 

Link to new law: 

https://leg.colorado.gov/sites/default/files/documents/2024A...

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Shane Roberts
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  • Investor
  • Denver, CO
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Shane Roberts
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  • Investor
  • Denver, CO
Replied Apr 7 2024, 15:42

Thanks for sharing, Will. I have several liens in Colorado currently. Will this be effective retroactively?

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Bill Schrimpf
  • Real Estate Agent
  • Reno, NV
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Bill Schrimpf
  • Real Estate Agent
  • Reno, NV
Replied Apr 7 2024, 16:29

@Will Sifert - Guess I was lucky to buy some liens last year without paying a premium, didn't even get down to zero!.  FL is super efficient, and not a bad model from the investor point of view.  What you describe sounds more like NJ.

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Will Sifert
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  • Covington, LA
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Will Sifert
  • Investor
  • Covington, LA
Replied Apr 7 2024, 17:51
Quote from @Shane Roberts:

Thanks for sharing, Will. I have several liens in Colorado currently. Will this be effective retroactively?

It is effective as of July 1, 2024 for any deeds that have not been assigned by that date. If you haven't filed for the deed already you going to have to follow the new law as it usually takes more than a couple months to get the deed after you apply for it. In my case I have several liens that will likely make 3 years at the end of this year, so this will affect all of them for me and everything else over the next couple years.

I've flown in to attend some in person sales in CO and for the most part I was ok with the premium bidding as I anticipated getting a decent amount of deeds at the end of the day. This destroys that logic and I will lose a lot of money.

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Will Sifert
  • Investor
  • Covington, LA
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Will Sifert
  • Investor
  • Covington, LA
Replied Apr 7 2024, 17:55
Quote from @Bill Schrimpf:

@Will Sifert - Guess I was lucky to buy some liens last year without paying a premium, didn't even get down to zero!.  FL is super efficient, and not a bad model from the investor point of view.  What you describe sounds more like NJ.

I guess it depends on what type of view the investor has. As someone who invests in tax liens to acquire deeds and not for the interest, this sucks for me. My understanding of Florida is that it is similar for the most part, except you bid down interest rate. If the lien is not redeemed then it goes to auction where it is bid on by the general public. Generally speaking, I know there are a lot of fine details and higher interest rate you make while you wait for it to be sold at auction etc. 

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Will Sifert
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  • Covington, LA
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Will Sifert
  • Investor
  • Covington, LA
Replied Apr 7 2024, 18:09

This is all a result of Tyler vs Hennepin County that was ruled on by the supreme court last year. Colorado freaked out because of that case and felt that it needed to alter it's tax lien sale process. But there was really no reason for them to do so....   MN is a tax deed state. In that case a lady owed 15K in unpaid taxes, the state sold her condo at deed sale for 40K and kept the overage.  Some states do this, for example SC does this but allows the prior home owner to apply to receive the overage. The "issue" was that the county should not profit from seizing someone's property for property taxes. They can take it and sell it to get back what they are owned but they can't keep the "extra". 

Colorado is a tax LIEN state. It does not have the same issue. For starters, the County doesn't sell the property, it sells a tax lien. While the county makes money (premium bids) from the sale of the tax lien the county makes nothing off of the transfer of ownership (deed) of the property. Lastly, there is no "overage".  In the deed sale case there are two clear amounts, the amount the owner owed in taxes and the amount collected from the sale. With a tax lien, there is no "overage" collected.   Well except for the premium bid amount. Perhaps they should have given the premium bid money to the owners who lost their property when a deed was issued.   The way tax liens work, the certificate holder gets to exercise their right under law to take ownership of the property (get the deed) when the redemption period expires and the owner fails to respond/ repay once the deed process has been concluded.

The only thing the MN case should have affected was tax deed states and that the county could not keep the overage. What Colorado did was unnecessary and will cost them millions in less premium bids because of this new system. I know some of the smaller counties really relied on this money. 

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Bill Schrimpf
  • Real Estate Agent
  • Reno, NV
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Bill Schrimpf
  • Real Estate Agent
  • Reno, NV
Replied Apr 7 2024, 20:49
Quote from @Will Sifert:
Quote from @Shane Roberts:

Thanks for sharing, Will. I have several liens in Colorado currently. Will this be effective retroactively?

It is effective as of July 1, 2024 for any deeds that have not been assigned by that date. If you haven't filed for the deed already you going to have to follow the new law as it usually takes more than a couple months to get the deed after you apply for it. In my case I have several liens that will likely make 3 years at the end of this year, so this will affect all of them for me and everything else over the next couple years.

I've flown in to attend some in person sales in CO and for the most part I was ok with the premium bidding as I anticipated getting a decent amount of deeds at the end of the day. This destroys that logic and I will lose a lot of money.


 OH - that sucks!  Am I reading this right?  If a lien already exists, but hasn't aged, to where it can be converted, then it's worthless?

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Will Sifert
  • Investor
  • Covington, LA
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Will Sifert
  • Investor
  • Covington, LA
Replied Apr 7 2024, 21:42
Quote from @Bill Schrimpf:
Quote from @Will Sifert:
Quote from @Shane Roberts:

Thanks for sharing, Will. I have several liens in Colorado currently. Will this be effective retroactively?

It is effective as of July 1, 2024 for any deeds that have not been assigned by that date. If you haven't filed for the deed already you going to have to follow the new law as it usually takes more than a couple months to get the deed after you apply for it. In my case I have several liens that will likely make 3 years at the end of this year, so this will affect all of them for me and everything else over the next couple years.

I've flown in to attend some in person sales in CO and for the most part I was ok with the premium bidding as I anticipated getting a decent amount of deeds at the end of the day. This destroys that logic and I will lose a lot of money.


 OH - that sucks!  Am I reading this right?  If a lien already exists, but hasn't aged, to where it can be converted, then it's worthless?

Not worthless, but you wont be issued a deed like in the past when the redemption period expired. Now it would have to go to auction and bid on by the public, high bidder wins. So you either simply initiate the auction and not bid, results in a redemption or hope no one else bids and only then would you get the deed. You could always bid and try to win it but that will cost you more money and who knows how high these will be bid up.  Before you just applied for the deed and if the owners didn't respond and pay it then you got the deed. Now it could cost you thousands of dollars to outbid someone else, eating most if not all of your profits.

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Bill Schrimpf
  • Real Estate Agent
  • Reno, NV
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Bill Schrimpf
  • Real Estate Agent
  • Reno, NV
Replied Apr 9 2024, 22:49
Quote from @Will Sifert:
Quote from @Bill Schrimpf:
Quote from @Will Sifert:
Quote from @Shane Roberts:

Thanks for sharing, Will. I have several liens in Colorado currently. Will this be effective retroactively?

It is effective as of July 1, 2024 for any deeds that have not been assigned by that date. If you haven't filed for the deed already you going to have to follow the new law as it usually takes more than a couple months to get the deed after you apply for it. In my case I have several liens that will likely make 3 years at the end of this year, so this will affect all of them for me and everything else over the next couple years.

I've flown in to attend some in person sales in CO and for the most part I was ok with the premium bidding as I anticipated getting a decent amount of deeds at the end of the day. This destroys that logic and I will lose a lot of money.


 OH - that sucks!  Am I reading this right?  If a lien already exists, but hasn't aged, to where it can be converted, then it's worthless?

Not worthless, but you wont be issued a deed like in the past when the redemption period expired. Now it would have to go to auction and bid on by the public, high bidder wins. So you either simply initiate the auction and not bid, results in a redemption or hope no one else bids and only then would you get the deed. You could always bid and try to win it but that will cost you more money and who knows how high these will be bid up.  Before you just applied for the deed and if the owners didn't respond and pay it then you got the deed. Now it could cost you thousands of dollars to outbid someone else, eating most if not all of your profits.


 Thanks for the update.  I missed this change, so much appreciated!