Tax Liens and Mortgage Lenders

 

In Colorado, liens for unpaid real property taxes have priority over all other liens, including deeds of trust. Many of our clients know this and maintain tax escrows on loans they hold which are secured by real estate. Yet not all loans require tax escrows. Lenders with second deeds of trust rarely maintain tax reserves. In light of this, it is important for mortgage lenders to have a sense of Colorado’s tax lien system. You may lose your deed of trust on a property which has gone to tax sale as early as three months after you receive notice of the sale.

If a property owner does not pay his taxes, the County Treasurer sells the tax lien in November or December of the year in which the taxes are due. The County Treasurer issues the successful purchaser a “Certificate of Purchase” documenting the purchase. At any time after three years from the original tax sale, the Treasurer must issue a deed to the holder of the Certificate of Purchase if the Treasurer has satisfied the necessary notice requirements (discussed below). This three year period is the “Redemption Period” during which a mortgage lender may protect its deed of trust. Because the treasurer’s deed conveys title free of your deed of trust, you must redeem or risk losing the security for your loan. The successful purchaser of a tax lien need not judicially foreclose his lien to extinguish your deed of trust.

A mortgage lender may redeem at any time before the Treasurer issues the deed to the purchaser of the tax lien by tendering the amount of the unpaid tax plus accrued interest. If the holder of the tax lien is slow in asking the Treasurer to issue the deed, you may have longer than three years to tender your redemption money. However, prudent procedures would require you to act within three years of the tax sale.

The “Notice of Purchase”

Before the Treasurer may issue a tax deed to the holder of the Certificate of Purchase, the treasurer must “cause to be served” a notice of the tax sale upon, among other people, all persons having an interest or title of record, not more than five months nor less than three months before the deed is issued. The service need not be personal and can instead be made by certified mail. The notice will identify the lot for which the tax lien was sold, who purchased the lien, the property owner, the year for the unpaid taxes, and the deadline for tendering the redemption money. Once you receive the notice of a tax lien sale, you may have less than three months to tender the redemption money.

The notice of tax sale does little good unless it is sent to the correct address. The Treasurer need only send the notices to the addresses contained in the real estate records. For this reason (and others), any change in your mailing address should be recorded in the clerk and recorder’s office against all properties in which you hold mortgages.

If the procedures are followed, mortgage lenders can protect themselves from their borrower’s failure to pay taxes.

 

Jon Goodman is a shareholder with Frascona, Joiner, Goodman and Greenstein, P.C., a Colorado law firm. His practice areas include Real Estate,Brokerage Law, Contracts, Land Use, Leasing, Real Estate Title, Association Law, Business Law, and Finance. Contact Jon Goodman.

Disclaimer — Content is general information only. Information is not provided as advice for a specific matter, nor does its publication create an attorney-client relationship. Laws vary from one state to another. For legal advice on a specific matter, consult an attorney.

JONATHAN A. GOODMAN