Big changes to the way Colorado handles it's tax sales

[Will Sifert]

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...

[Shane Roberts]

Hey all,

I have an update on the situation in Colorado with the new legislation. I've reached out to the Treasurer's Office  in several counties, and I've received essentially the same information across the board, which I thought would be useful to share here.

After three years, the lien holder can still apply for a treasurer's deed. However, the process will now take longer than before because the property must first go to auction. Once the auction is held, the person who applied for the treasurer's deed will have the option to match the winning bid. If they choose to match, they will receive the treasurer's deed. If the lien holder decides not to match the bid, they will get their initial investment back along with the interest that was applicable at the time the lien was purchased.

This change is certainly less advantageous for investors compared to the previous system. However, it's possible that potential bidders at the auction might be less inclined to bid aggressively, knowing that the lien holder could step in, match their bid, and take the property. We'll have to see how this plays out. We have a property that just became eligible for a treasurer's deed in the last couple of weeks, and I'll report back on this thread with any relevant updates. The county mentioned that it could take 6 to 8 months for the auction to take place.