Douglas County Tax Lien Sale
I went to the Douglas County Tax Lien Sale on October 20th to observe and learn. It was quite a show really. There were about 80 people in the room all bidding for hundreds and hundreds of tax liens. It moved pretty fast. I'd say each property took all of one minute. There were institutional bidders in the crowd buying liens for Real estate investment trusts and other entities with hundreds of thousands of dollars to spend!
What was interesting to me is that everyone seemed to have a limit to what they'd bid, and if someone went over their bid they'd just bow out, and even if the other bid was $10 more than theirs. Is that really enough to make a difference? It's normal to bid 2-3% over the value of the tax lien, but in the end I saw a lot of bids going for 4% over the amount. If you get paid 10% interest from Douglas County, you are losing 4% right away with that premium you paid up front. So its not as lucrative as it seems upfront. But I guess that doesn't stop people from buying them. The ultimate prize is to get the "treasurers Deed" from the County, and when that happens, YOU OWN IT.
I saw tax liens for auction for a bunch of builders' lots, lots of whole subdivisions, and even Jack Vickers the owner and founder of Castle Pines. So there are a whole lot of people that don't pay their property taxes evidently. And there were a ton for Parker CO and Castle Rock CO and of course Highlands Ranch CO.
The Tax Lien Sale occurs once a year. If you want to purchase a tax lien you have to pre-register and be present (our your representative) at the day of the sale. You will have to pay by personal check or by certified funds at the end of the sale. You can purchase as many tax liens as you would like, that is, if you are the HIGHEST BIDDER. This is an AUCTION, so the tax lien goes to the highest bidder.
Tax liens sale DOES NOT make you the owner of the property! You will become a lien holder. Think of the tax lien as an investment. You buy it and hold it until somebody; the owner, a senior lien holder etc. redeems the lien. You will receive interest on the lien, which is predetermined. Last year it was 15%.
Tax Liens are not a get rich quick or get a house for next to nothing type of an investment.
There are several potential risks on purchasing a tax lien. Here are just a few of them:
You need to decide the investment potential of the particular tax lien you are interested in purchasing. Many liens are paid back (redeemed) within 6 months from the sale of the tax lien, which means the accumulated interest is minimal.
1. Bankruptcies - the owner could file a bankruptcy making your investment go down the drain.
2. Senior lien holder can buy your lien out at any time.
3. The following year another "investor" could buy a junior tax lien on the same property.
4. There may be any other liens on the property.
GETTING THE HOME - BECOMING THE OWNER - happens app. 2% of the time
In Douglas County only app. 2% of the tax liens turn into Treasurer's Deeds , meaning the lien holder gets the home. In order to apply for the Treasurer's Deed you need to have had the tax lien for 3 years. Once 3 yrs has past and you apply to get the Treasurer's Deed the owner and any other senior lien holders are notified, several times and the information is posted in a newspaper. The owner or any seniro lien holders can then redeem the lien from you - or buy it back if you will.
Final note: Purchasing a tax lien does note make you the owner of the property. It can be a good investment. but is not a instant get rich scheme.
Too good to be true? I guess you'll have to decide that yourself. If it was so great you'd think there would be even more people bidding. Then again, there were guys in there representing huge REITS and buying 30,000 tax liens left and right. Hmmmmm......