Consequences high for unpaid property taxes

By: OPINION Jim Flynn
March 11, 2007
Although most of the attention given to taxes these days has to do with income taxes, this is also the time of year when property taxes are supposed to be paid.
Here in Colorado, property taxes accrue during the current year, and then come due in the following year. So, 2006 taxes are now up for payment in 2007. You can either pay your property taxes in two equal installments — Feb. 28 and June 15 — or, if you prefer to suffer only once (but in a greater amount), you can pay the entire tax obligation by April 30. What happens if you don’t pay your property taxes on time? Well, several things. First, although the county treasurer won’t sue you to collect what’s due or throw you out on the street, a steep monthly interest charge will be assessed, along with administrative fees resulting from your delinquency. Next, your property will be subject to a tax lien, meaning that, if the taxes don’t get paid for a period of time — three years and some change — you will lose the property. If you have a mortgage on your property and your taxes aren’t included in your monthly payment, you should also know that not paying your taxes will be an event of default, allowing your lender to foreclose. Mortgage lenders worry about unpaid taxes because the tax lien that results has priority over the lien of their mortgage. Now, here’s the part that gets interesting. Because governments that need your tax money to fight fires, educate children, imprison criminals, fix potholes, have holiday parties, etc. can’t wait around for you to finally catch up on your delinquency, each fall the county treasurer sells its tax lien position through a highly structured process. This process begins in September with the publication of a list of delinquent property taxes and culminates in late October with an auction. And the auction presents a potentially lucrative investment opportunity for people who know what they’re doing. That’s because once the tax lien is sold, the purchaser of the lien earns interest on the unpaid tax liability at a rate that is 9 percentage points in excess of the discount rate in effect on the Sept. 1 immediately preceding the sale. Using that formula, the interest rate for the tax lien sale that occurred last October was 15 percent — considerably higher than your friendly local bank is paying on certificates of deposit. The normal procedure for someone buying a tax lien on a property is to then pay the taxes on that property for two more years, with the additional invested funds also earning interest at the rate applicable to the initial tax lien purchase. If the owner of the property hasn’t paid the taxes, together with interest and fees — a process called redemption — by the end of three years, the purchaser of the tax lien can apply to the county treasurer for a deed to the property. If the owner does finally pay, the money goes to the purchaser of the tax lien. Thus, an investor in tax liens can either enjoy a high rate of return on invested money or acquire ownership of property at what may be a bargain price. But, tax lien investors need to be cautious. The property in question could turn out to be a Superfund site, home to a large family of Preble’s jumping mice, a methadone factory or suffer some other infirmity that makes it worth less than the amount of the taxes. Interested in tax lien investing? Go to the El Paso County treasurer’s Web site at, click on “tax lien sale,” and carefully read the information therein provided. Contact Jim Flynn c/o The Gazette, P.O. Box 1779, Colorado Springs 80901; fax 578-8836 or e-mail Not all questions can be answered.
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