Realtor · Colorado Springs, CO · Member since 2016 · 124 posts · 34 votes
I'm studying for my Broker's license and I came across something very interesting. Apparently, if someone is delinquent on their taxes, the property goes to a Tax Sale where the highest bidder (above taxes owed) gets a Purchase Certificate. Then if they pay taxes on the property for 3 years they can take ownership of the property with a Treasurer's Deed. This is all dependent on the current owner never bringing the taxes current during that three year period. My question however, is how can a property owner become delinquent on the property taxes? I thought the priority of mortgage payment was: escrow (for taxes and insurance), interest, default interest, then principal. If this is the case, then the only way to be delinquent on taxes is if you're in default on the mortgage and then the foreclosure process will be much faster than 3 years.
Can anyone explain this to me? Seems like it could be a neat (albeit risky) investment strategy.
Could become delinquent if there was no mortgage on the property. Could also have a mortgage with no escrow and handle tax/insurance payments on your own.
Could become delinquent if there was no mortgage on the property. Could also have a mortgage with no escrow and handle tax/insurance payments on your own.
Ryan Sanders There's more paid for property than you think in Colorado. My dad used to buy taxes in Co. This was 40 years ago so it probably different now. The bidding was taxes owed + The owner would have to pay a set amnt of interest per month to the county when they catch the taxes up. Many developers let taxes go on undeveloped lots for a year or two until the lot is sold. Then they catch them up upon sale of the lot. In the mean time some investor gets all those months of interest. The gamble is don't overpay at the auction. Some people used this method to clear a clouded title. After the first year subsiquint tax notices go to the new address. If you pay 3 years of taxes the owner still has the opertunity to catch the taxes up. I believe it's 7 years before you can just apply for tittle and actually own the property. It's main purpose is for the county to collect the taxes and the investor gets the interest. Again this was many years back. I don't know if it's still the same. RR
@Ryan Sanders most of the ones I recall were vacant lots. It's not like you can pick and choose unless you have a vast knowledge of property legal descriptions. The ones i remember were a lot of meets and bounds descriptions and maybe in a subdivision a lot and filing number. We bought them and then looked them up later. Remember this was before smart phones you mite be able to look them up before buying now though. Late in the day they would auction blocks of properties off. Maybe 20-25 at a time. You have no idea what you are buying. We had an alley way we let go for taxes in Lyons co. It was completely useless. Should have been divided up between the lot owners. My grand father bought it many years ago for taxes. Paid taxes for 40-50 years then when we inherited it we let it go for taxes. Not a good way to pick up a bargain Not saying you can't but if you want usable land you will loose more than you will win. Sometimes it's the way you dispose of a property that has no value. Smal left over pieces in a subdivision maybe one with no access etc etc. If the owner doesn't redeem it there is probably a reason why. For every good one there are several losers. Sometimes if I'm selling I'll let the taxes go until I find a buyer. If I sell it before you get enough interest to make your bid you will loose. Best idea is to hope the owner redeems and you get enough interest to make your bid back. If you buy the ones on that alley way in Lyons your gonna loose. We are not redeeming it and it's useless except to the pple who own the houses it services. Try to block it off and see what happens. There's 3 houses on it and it's about 150 ft long and 20 ft wide. No value See what I mean?? Your best bet would be pay the first year then after you look it up you let it go for taxes. Sometimes the same properties are on there year after year. That's just one example out of thousands state wide. RR
Do a google search on "tax lien sale". Many of us opt to not pay taxes via escrow (I would rather earn interest on my money than have other people hold it and earn the interest themselves". Tax liens used to be very lucrative but they've become very popular in recent years. The Weld County sale here in Colorado is coming up soon and the rest of the counties will follow suit very soon. There are other state auctions going on as well. Lots of raw land, lots of easements, a few homes. About 97% of the time people will pay off their taxes though there is still that 3% chance you will end up with THE OPPORTUNITY to acquire the property.
In Colorado, we bid on interest - if the quoted rate is 10%, then investors bid down the rate to acquire the lien. It is simple interest. In other states, a penalty may be included.
Think of the purchase of the lien as a loan to the property owner. If they don't pay it back, as a lender, you can foreclose on their property given each individual state law.
It is buyer beware and you need to investigate the property the lien relates to.
@Ryan Sanders it is a business model to buy tax liens. I don't have a lot to add to what has been said above. The business of tax liens is that you get a rate of return on your money and then the bonus or gravy is when you actually get a property.
Also be aware that one approach is to contact people who are delinquent on their taxes to buy the property or list it for them. There is lots of competition in the field.
You're right, the holder of a mortgage on improved property would typically not let it go to auction. The mortgage holder, i.e. bank, etc., would either take over paying the taxes themselves to protect their security or repossess themselves.
States typically are in one of two camps regarding how they recover delinquent property taxes. There are the tax deed states like CA where after 5 years they just auction off the property to a new owner or tax lien states like CO where they auction off a lien against the property to an investor who takes over the tax payments and possibly the property eventually.
For a property to make it to an auction years later it is usually owned free and clear and most properties in that category are vacant land which banks typically will not finance.