Colorado Tax Lien Certificates

Type of Tax Sales in Connecticut Townships

In each of the 63 counties of Colorado Tax Lien Certificates are sold at auction. The face value, or starting bid on each certificate is the total of taxes owed, interest penalties, and any other costs associated. Unlike most states that use Tax Lien Certificates, Colorado does not have a fixed interest rate. The interest rate on certificates is 9 times the rate in which banks can get money from the Federal Reserve. The rate for 2004 is 12%.

When are the auctions held?

Auctions are held in Colorado on the second Monday in December, and continue until all Certificates are sold.

The Tax Lien Process in Colorado

In Colorado, rather than bidding on the property itself, you are really bidding on the right to collect interest on default property taxes. The bidding for certificates starts at face value. But rather than bid on the interest rate, as some states do, the person willing to pay to most money in cash is awarded the certificate. The money in excess of the face value of the certificate goes directly to the county government. You will want to be careful when bidding in these types of auctions. The more you pay over the face value, the more your rate on return is going to diminish.

There is also a “Right of Redemption” period that encumbers each Tax Lien Certificate. The period of Redemption is 3 years. This means the former owner can buy back the property within the period allowed. The former owner must pay back all taxes owed, interest penalties, and other recording fees in order to redeem the property. This money is then returned to the holder of the Tax Lien Certificate. But, if the former owner doesn’t redeem in less than a year, the holder of the certificate can pay the following year’s property taxes as well. This entitles the holder to collect interest on those payments as well. Now, if the former owner doesn’t redeem the property after 3 years, then the holder can present the certificate to the County Treasurer. The Treasurer will then notify the person in possession of the property. If the person in possession does not respond within 5 months, the Treasurer will make out a deed to that property.

Here's an example of how a TLC purchase could work in Colorado:

Tax Lien Certificate Face Value: $2,500.00

Winning Bid Amount: $3,000.00

Interest Rate: 12.0%

Recording Fee's: $20.00

Let’s assume the former owner redeems the property after 2 years, and the holder of the certificate pays the following years property taxes on the property at $2,000.00. So, $2,500.00 @ 12% for 2 years is $3,100.00. Plus a year of interest on the additional taxes paid @ 12% is another $2,480.00. The former property owner must pay back $5,600.00 (Face value @ 12% for 2 years + Additional taxes paid @12% + Recording Fees). The holder of the certificate paid $3,000.00 at auction + $2,000.00 additional taxes + $20.00 recording fee for a total of $5,020.00. So, the holder of the certificate realized a net gain of $ 580.00. Probably, not worth the hassle, considering the interest on your money comes out to fewer than 6%. Now, if the holder had paid the Face Value of the Certificate at the auction, the net gain would be $ 1,080.00. That’s about a 10.75% interest rate, this is a good example of why the investor needs to be aware of bidding over of the face value of the certificate.