Investing in Tax Lien Sales Karen Sheaffer
Tax Liens What are they? Tax liens are a lien placed against real property or a mobile home for the amount of the unpaid taxes. Is this a way to acquire real estate? In Eagle County, this is a good way to invest your money, however not a way to acquire real estate. Less than 1% of all property taxes sold in Eagle County actually go to deed. Is this a way to get rich quick? Be careful of misleading information. 2
Tax Liens Tax liens can be a good investment. This presentation is designed to acquaint you with how the process works in Colorado and help you make an intelligent decision by investigating before you invest. Eagle County employees (or family members) cannot participate in the Eagle County Tax Lien Sale; however, they may participate at other counties. 3
Treasurer s Duties: The Treasurer s duties are to bill, collect and distribute property taxes, invest excess funds and provide cash flow for county expenditures. The 82 taxing districts (schools, libraries, fire departments, metro districts), as well as the county, depend on 100% collection each year to make budget. The sale of tax liens helps us meet that goal. 4
Collecting Taxes Taxes are collected a year in arrears; for the 2014 taxes due in 2015, the Treasurer will collect a little under $165 million. The treasurer mails property tax notices to the owner of record every January. Property owners have the option to pay taxes in two half payments due February 28 and June 15, or they can make one full payment by April 30. 5
Disbursing Taxes The treasurer is required by state statute to disburse the monies collected each month to the individual taxing authorities by the 10 th of the following month. The treasurer receives a fee for collecting the taxes for the taxing authorities CMC 1% Schools -.25% Towns 2% Special Districts 3% County - 3% 6
Delinquent Taxes All unpaid property taxes become delinquent as of June 16; interest accrues at 1% per month on delinquent taxes. In July, a delinquent notice is mailed to the owner of record for all delinquent accounts; a list is then compiled of all the delinquent accounts and is split up among the Treasurer staff. Each staff member attempts to call every person on their list. The treasurer is then required to advertise all delinquent property taxes in the local newspaper in September and October. All Mobile Home and Personal Property taxes that are delinquent as of October 1 are served a distraint warrant at the property by the Eagle County Sheriff s Office. 7
Tax Lien Sale All unpaid Real Property and Mobile Home taxes will be sold at the annual tax lien sale, which is held in November. Tax Investors participate in the online sale and pay the taxes, which puts a lien on the property, and the investor earns interest on the tax lien. The tax lien sale interest rate for 2015 will be 10%. At the 2014 tax lien sale we sold a total of 96 real property taxes and 4 mobile home taxes. 8
Tax Lien Sale It is only the taxes that are being sold, not the property. The investor must hold the lien for three full years before they can apply for deed to a real property and one full year for a mobile home. The has issued 11 Treasurer s Deeds in recent history, the majority of which were vacant land. Personal Property taxes are not sold at the tax sale; instead their items can be seized and sold to cover the property taxes. 9
TAX YEAR: 2007 2008 2009 2010 2011 2012 2013 2014 Tax Roll Warrant $183,230,186 $187,677,201 $205,427,770 $206,438,840 $170,351,730 $171,566,948 $163,961,622 $164,856,930 Spec. Ass/Delinq. Fees $397,133 $377,755 $654,999 $253,790 $254,823 $238,092 $191,741 $40,937 Tax Sale Date 11/5/2008 11/4/2009 10/27/2010 11/9/2011 11/8/2012 11/6/2013 11/5/2015 11/5/2015 Tax Sale Interest % 11% 10% 10% 10% 10% 10% 10% 10% REAL: Original Notices 33,835 34,597 34,794 35,033 34,987 34,974 34,947 35,012 Delinquent Notices 2,058 2,969 2,754 2,371 2,277 1,594 1,791 1,724 Accts Advertised 316 880 669 529 420 371 229 302 Last Letters 172 N/A 567 442 300 323 175 # Sold at Tax Sale 186 710 446 287 169 166 96 Over $7,500 67 189 113 81 25 27 18 $500-$7,499 88 451 315 174 122 120 70 Under $500 / Mines 31 68 18 32 22 19 8 Struck off to County 0 46 0 2 0 0 0 # of Investors 73 175 163 175 144 138 100 Premiums Made $15,720 $43,050 $57,230 $39,360 $24,690 $27,990 $18,800 Total Dollars Sold $896,753 $4,374,673 $2,743,394 $1,962,291 $758,006 $819,030.93 $444,064.83 10
TAX YEAR: 2006 2007 2008 2009 2010 2011 2012 2013 2014 MOBILE HOMES: Original Notices 1,580 1,559 1,541 1,540 1,537 1,527 1,522 1,503 1,484 Delinq. Notices 309 33 3 324 408 340 363 304 352 302 # Advertised 1st 69 89 56 110 91 71 118 112 104 # Advertised 2nd 28 32 23 40 30 11 28 17 Last Letters 37 54 N/A 27 22 8 11 13 #Distraints served 48 48 36 45 62 20 38 42 # Sold at Tax Sale 12 4 14 18 8 2 6 4 Struck off to County 0 0 4 2 2 0 0 0 Total Dollars Sold $3,256.18 $1,699.21 $4,178.27 $4,907.11 $987.06 $346.00 $1,260.32 $1,022.18 PERSONAL PROP. Original Notices 3,700 3,906 3,905 3,699 3,762 3,210 3,084 2,686 Delinquent Notices 423 476 411 508 383 286 262 198 # Advertised 52 80 62 173 53 50 59 41 # Distraints served 40 43 42 65 33 15 19 19 11
Why would Someone Let Property Go To Tax Sale? Inability to pay the taxes. Confusion about who is to pay the taxes. Mail is being returned Owner moved and did not provide us with a change of address. Land Developers use it as a line of credit. Undesirable property that owner does not want to retain. Escrow / Mortgage company paid incorrect account. 12
13 Tax Sale Certificates Tax Sale Year Certificates Sold Struck off to Eagle County Dollars Sold Premium Percentage Interest Rate 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 149 107 173 130 118 80 85 66 71 186 710 446 285 169 166 96 3 2 2 0 0 0 0 0 0 0 46 0 2 0 0 0 525,254 259,346 544,543 562,147 495,346 341,842 345,530 279,556 245,361 896,753 4,374,673 2,743,394 1,962,291 758,006 819,031 444,065 5% 2% 2% 3% 4% 4% 5% 6% 4% 2% 1% 3% 3% 6% 6% 7% 14% 15% 12% 10% 11% 12% 14% 15% 15% 11% 10% 10% 10% 10% 10% 10%
How to Proceed Educate yourself on tax liens Research properties Register as a buyer Be prepared to invest your money for up to 3 ½ years 14
Property Information Advertising list or Tax Lien Sale list Eagle County website: www.eaglecounty.us/treasurer Assessor s Office 15
Registering as a Tax Investor Typical Buyers Anyone over the age of 18 is eligible, except Eagle County employees and their family members. All potential bidders must register before the sale date which is the official start of the sale. Registration will be made online at https://eagle.coloradotaxsale.com. The registration will include the completion of an IRS required W-9 form and acceptance of a buyer beware document. To begin bidding, you will need to make a deposit of at least 10% of what you plan to spend at the tax lien sale. Deposits can be made by check or wire transfer. Final payments, once the tax lien sale is complete, will also be made by check or wire transfer. We assign one bid number per social security number or Tax ID number. 16
The Tax Lien Sale Tax liens are sold to an investor for a fixed rate of interest established on September 1. The Treasurer has discretionary power in conducting the sale. The Eagle County Tax Lien Sale will be held online this year. The sale will be administered by Realauction, and is conducted with the goal of fairness and efficiency. Approximately 2 weeks after the sale, you will receive a copy of your Certificate of Purchase. 17
Premiums A premium is the amount bid at the sale which is money paid over and above the amount of the tax lien. This amount is not returned, nor does the amount earn any interest. Premiums How much to bid? Calculate the premium that you are comfortable with (in dollars) before the sale know when to say when. 18
Return on a $7,500 Tax Lien Based on a 10% yearly Coupon rate Redemption (Maturity) 1 Month 6 Months 1 Year Interest Paid $62.50 $375.00 $750.00 Premium 10%-$750 ($687.50) ($375.00) $0 5%-$375 ($312.50) $0 $375.00 2%-$150 ($87.50) $225.00 $600.00 19
Investment Example Example based on a 10% yearly interest rate and a $7,500 tax lien. November 5, 2015 You buy a property tax for $7,500 at the tax sale with a 5% premium ($375). You have invested $7,875.00 December 1, 2015 The owner comes in and redeems out the sale. The amount owed to you is the $7,500 tax sale amount plus 1.66% (2 months) interest for a total of $7,625.00. The Treasurer s Office pays you the funds received for the redemption in the amount of $7,625.00. You lost $250.00 of your investment in 2 weeks. 20
Safekeeping of Certificates We will issue a Certificate of Purchase for each lien that you buy at the tax lien sale. Certificates and redemption payments are issued in the name submitted on the registration form, unless an assignment has been completed. We provide safekeeping of all these certificates unless requested otherwise by the investor. This service is free and speeds up the payment process. We highly recommend that you use this service, because if your certificate is lost or misplaced, you will need to purchase a surety bond. 21
Endorsements An endorsement is the option extended to the previous year s tax lien certificate holder to pay the current year s delinquent taxes on the same property prior to the tax lien sale, without it going to tax sale again. Advantage of Endorsements: Earns interest from endorsement date (August) rather than from tax sale in October/November. If interest rate drops, endorsing locks in a higher rate from the earlier tax sale. There will not be another investor after you who could possibly apply for a deed if you choose not to. 22
Beware of Potential Problems Minerals Mobile Homes Open Space and Homeowner Associations Mines Unbuildable land i.e. drainage ditch, easement, etc. 23
Redemptions How are certificates redeemed? The property owner pays the delinquent back taxes and interest due in full to the Treasurer. The owner must pay in cash or certified funds. The tax lien certificate can be redeemed at any time until a Treasurer s Deed is issued. A check is issued (to the name on the Certificate of Purchase) and mailed to the Investor in the amount of the tax lien plus interest. 24
Rate of Redemption for Certificates Sold at Tax Sale TAX SALE YEAR 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 # of certificates sold 96 166 169 285 446 710 186 71 66 85 Same Month 14% 13% 11% 3% 1% 5% 10% 15% 14% 7% Within 3 Months 38% 41% 30% 19% 29% 24% 23% 36% 39% 24% Within 6 Months 47% 54% 59% 31% 50% 38% 28% 47% 49% 40% Within 12 Months 60% * 67% 72% 62% 64% 56% 36% 76% 82% 53% Within 24 Months 83% * 82% 87% 87% 64% 85% 92% 94% 76% % Currently Redeemed * 60% 83% 88% 95% 95% 99% 99% 99% 99% 100% # Unredeemed * 38 28 20 12 21 0 0 1 1 0 Treas. Deeds issued 1 3 3 2 0 0 2 * Includes redemptions through 8/31/15. -As you can see, after 12 months, more than half of the certificates are typically redeemed with the exception of 2008. - It is also important to note that 19-43% of the certificates are redeemed within the first three months after the sale. If you bid a premium of more than 3% on those certificates, you will lose money. 25
Deeding A Treasurer s Deed cannot be issued until at least three years from the date of the original tax sale. The certificate of purchase must be 3 years old. The investor may apply for the Treasurer s Deed three months prior to the end of the 3- year period. The deed process takes approximately 6 months. 26
Deeding Applying for a Treasurer s Deed Investor must complete a deed application and submit to the Treasurer s Office along with the Treasurer s Deed deposit of $300. Average Cost for Treasurer s Deed: Treasurer s Fee of $75 O&E Owners & Encumbrances (report to follow chain of title) Notice to Parties Publication in local newspaper Payment of all outstanding property taxes Note The cost of issuing a Treasurer s Deed could exceed $300. If this is the case, then the additional funds will be due from the investor before the deed is issued. 27
Deeding Additional costs not included that could be incurred to obtain a good title are: Survey Quiet Title going to court to secure a clear title A Treasurer s Deed is not a warranty deed (there are no guarantees) and could be contested. 28
Deeding A Treasurer s Deed is superior to all other encumbrances such as: Mortgage Lenders Judgment Creditors Mechanic Liens Tax Lien Certificate Lien Holder Standing See the letter Priority of Tax Liens in your handout. 29
Priority of Tax Liens Letter Tax liens take a superior position to all other encumbrances on real property. Other encumbrances are prioritized by the recorded filing date. Judgment liens, mechanic liens and other liens that have been placed on the property may have redemption rights, which can be exercised to protect their interest. We are often asked what is the standing of a lien holder who does not endorse their certificate when a subsequent lien holder applies for a Treasurer s Deed. The simplest answer is that at any time until the deed is issued, the holder of the oldest Tax Lien Certificate has the option of paying the subsequent tax lien holder in full for his/her taxes, and all expenses incurred and may apply for a Treasurer s Deed in their name. It will require a new deed application and additional processing fees will be incurred. The senior lien holder may also elect to do nothing, in which case his/her lien will become null and void. This often happens when an investor decides to cut their losses, rather then continuing to advance money on an uncertain investment. If a mortgage lender is involved, they also have full redemption rights, and should they elect to exercise those rights, they may pay the certificate holder who is applying for the deed. They may also pay the oldest certificate holder at their option. Keep in mind there is no mandatory requirement for the mortgage company to exercise their right to redeem. Should they elect to pay only the certificate holder who is applying for the treasurer s deed, the senior certificate holder would still have a valid lien. Subsequent mortgage holders have redemption rights determined by the filing dates on their deeds. The owner of record also has full redemption rights until the Treasurer s deed is issued. Treasurer s deeds can be challenged in court and it is normally a good idea to file a quiet title suit if you intend to build or sell the property. You may also want to obtain a survey to avoid any boundary disputes, particularly on mountain property or any property that has building improvements. This is very general information. Each certificate may have unique problems, and it is recommended that you consult with your own attorney for any specific problems. 30
Example Deed Process Apply for Deed Receive Deed February/March 2019 Endorse September 2018 August 2018 Endorse August 2017 Endorse August 2016 Buy Lien November, 2015 31
Important Considerations This is not a way to obtain real estate. Tax liens are not a liquid asset. Your money will be tied up for an unspecified amount of time. Early redemption may result in a loss on your investment, depending on the premium you paid. There is no guarantee it will be paid. 32
Profit Potential This is a potentially high yielding investment opportunity that is available to everyone who is willing to spend the time and energy necessary to investigate and manage their investment. If the property owner has not redeemed the Tax Lien Certificate after three years, the tax lien holder (investor) has the right to apply for a Treasurer s Deed to the property, which means you could end up owning the property. The interest rate is fixed for the life of the investment 33
Conclusion Tax Liens should be considered an investment REMEMBER you are buying the tax lien and not the property. Watch out for the Pitfalls Minerals, Open Space, Mobile Homes. Know what you are buying Investigate your purchases before endorsing or applying for deed. We have many of the same buyers year after year, so purchasing tax liens in Eagle County must be a good investment. 34
2015 Tax Lien Sale The 2015 Eagle County Tax Lien Sale is scheduled to be held on the internet on Thursday, November 5, 2015 at https://eagle.coloradotaxsale.com. A list of all the tax lien sales held in Colorado is available on the Treasurer s website at www.eaglecounty.us/treasurer 35 G:/DOCS/PRESENTATIONS/TaxLienSalePresentation.ppt