Keeping the Surplus?
| Jurisdiction | Colorado,United States |
| Pages | 28 |
| Citation | Vol. 53 No. 1 Pg. 28 |
| Publication year | 2024 |
FEATURE | REAL ESTATE LAW
Examining Colorado's Real Property Tax Lien System in Light of Tyler v Hennepin County
BY MAKENNA X. JOHNSON
This article examines Colorado's real property tax lien system and discusses how Tyler v. Hennepin County may impact Colorado law.
In Colorado, if a property owner allows property taxes to become delinquent due to nonpayment, the county in which the property is located can sell a lien on the property to a private investor in a public tax certificate auction.[1] The property owner may redeem their property by paying the property taxes, the accrued interest, and other costs.[2] If the property owner does not assert their right of redemption within three years from the date of the auction, the tax lien holder can apply for and obtain a deed from the county, thereby obtaining title (in the form of a treasurer's deed) to the property.[3]
In Tyler v. Hennepin County, Hennepin County, Minnesota (County) acquired title to Tyler's property to satisfy past-due real property taxes and associated penalties and interest totaling $15,000.[4] The County sold Tyler's property at auction for $40,000 and kept the surplus $25,000 ("surplus" here means the "home equity" or the money property owners forfeit above their tax debt).[5] Tyler filed suit, arguing that the County had appropriated her property in violation of the Takings Clause of the Fifth Amendment ("nor shall private property be taken for public use, without just compensation") and imposed an excessive fine within the meaning of the Eighth Amendment ("nor excessive fines imposed . . . .").[6] Ultimately, Tyler brought both issues to the US Supreme Court, which unanimously determined that the County deprived Tyler of her property without just compensation in violation of the Fifth Amendment.[7] Having resolved the takings claim in Tyler's favor, the Court did not address the excessive fines issue.[8] But Justice Gorsuch, joined by Justice Jackson, addressed the Eighth Amendment question in concurrence, highlighting the lower courts' reasoning, which "future lower courts should not be quick to emulate."[9]
Tyler may impact the real property tax systems of several states and the District of Columbia. Although Colorado's real property tax lien sale process is not identical to Minnesota's, Tyler suggests that Colorado's system may run afoul of the Takings Clause of the Fifth Amendment because it does not provide a mechanism for property owners to receive the surplus of their property above the tax debt.[10] In addition to the Tyler majority, other sources support the notion that Colorado's system may be constitutionally suspect, such as the US Supreme Court's decision to remand two cases questioning tax lien systems that are similar to Colorado's in light of Tyler,[11] Justice Gorsuch's concurrence in Tyler discussing the Excessive Fines Clause,[12] and Attorney General Weiser's formal opinion regarding Tyler.[13] Notably, Tyler may impact Colorado law soon. On September 28, 2023, the City and County of Denver filed a Complaint for Declaratory Relief requesting the Denver District Court to determine whether Colorado's tax lien system is unconstitutional.[14] Additionally, the Interim Legislative Oversight Committee Concerning Tax Policy &Task Force recommended changes to the Colorado Revised Statutes in light of Tyler.[15] This article describes Colorado's tax lien process, analyzes the Tyler opinion, and considers the implications of Tyler on Colorado law.
Colorado's Property Tax Lien Process
Although municipalities can receive title to tax-delinquent properties in some scenarios, Colorado's property tax lien process primarily involves the sale of tax liens to private investors.[16] Once a tax lien is sold, the purchaser of the tax lien receives a certificate of purchase.[17] Like a private investor, in some circumstances, municipalities can own a certificate of purchase.[18] Any time after three years from the date of the tax lien sale, the holder of the certificate of purchase may acquire title to the tax-delinquent property if the property owner did not redeem their interest.[19]
Colorado's real property tax lien system begins with the county compiling a list of property owners who have not paid their property taxes for the past year and sending the property owners a notice of unpaid taxes.[20] This notice must state the amount due and warn the property owner that if the amount is not paid before a specified date (which cannot be less than 15 days from the mailing date of the notice), the treasurer will advertise and sell a tax lien on the real property at a public auction.[21] The treasurer must also publish and post notice pursuant to CRS § 39-11-102.
After proper notice and expiration of the payment period, the county treasurer may hold a public auction to sell tax liens to private investors who, upon payment of the taxes, interest, and fees due, receive a certificate of purchase.[22] If more than one private investor bids on a tax lien, it will be sold to the person who bids the largest amount in excess of the delinquent taxes, interests, and fees.[23] Counties credit any amount in excess of the tax delinquency to the county general fund.[24] If there are no bids on a specific tax lien, then the treasurer will "strike off" the tax lien and issue a certificate of purchase "to the county, city, town, or city and county."[25] These municipalities may sell, assign, and deliver the certificate to any private purchaser willing to pay the amount for which the tax lien was bid and all interest and costs accrued since the sale of the tax lien.[26] Likewise, any private investor who successfully bids on and acquires a tax lien (evidenced by a certificate of purchase) can sell or otherwise transfer the certificate to another party.[27] Thus, one who possesses a certificate of purchase holds a tax lien on the underlying real property.
After a tax lien is sold, the owner of the property encumbered by a tax lien may redeem the property within three years from the date of the sale by paying all taxes, fees, and interest.[28] If the property owner fails to do so, the certificate of purchase holder may request a treasurer's deed from the treasurer.[29] Before the certificate of purchase holder is entitled to the deed, they must request that the treasurer serve a notice on every person in actual possession of the property, the person in whose name the taxes are assessed, and all parties with an interest in the land.[30] If the property assessment value is $500 or more, the treasurer must also publish notice.[31]
After the treasurer complies with the notice provisions, the treasurer must sign the deed, which "shall vest in the purchaser all the right, title, interest, and estate of the former owner in and to the land conveyed and also all right, title, interest, and claim of the state and county thereto."[32] Notably, courts have interpreted this language so that "a treasurer's deed issued pursuant to a valid tax sale extinguishes all prior liens, encumbrances, and other charges against the real property and conveys a new and paramount title to the grantee."[33] Counties are permitted to receive tax deeds in this manner as well.[34] After a county receives a deed, the county can retain, lease, or sell the property.[35]All proceeds from the property, whether by sale, lease, or otherwise, are paid to the treasurer and distributed to the taxing jurisdictions in which the property is located.[36]
A property owner whose land was transferred by a treasurer's deed must bring an action for recovery of the land within five years after the execution and delivery of the deed.[37]
Tyler v. Hennepin County
In Tyler, the US Supreme Court determined that the County had taken private property without just compensation in violation of the Fifth Amendment when it sold Tyler's property to satisfy delinquent real property taxes and kept the surplus.[38] The unanimous decision by the Court turned on the determination that Tyler's "home equity," or the surplus, is a property interest protected by the Fifth Amendment, overruling the US District Court of Minnesota and the Eighth Circuit Court of Appeals.
Background: How Tyler Brought Her Case to the US Supreme Court
Geraldine Tyler, a 94-year-old woman, owned a condominium in Hennepin County, Minnesota. After moving out of her condominium, she neglected to pay her property taxes. By 2015, her taxes amounted to roughly $2,300, plus costs, interest, and penalties of approximately $12,700.[39] In total, Tyler's property tax debt amounted to roughly $15,000.
The County foreclosed on Tyler's property under Minnesota's delinquent property tax statutory scheme. Under Minnesota law, property taxes become delinquent on January 1 of the year following the year in which the delinquent taxes were due.[40] Minnesota counties generate lists of property owners with delinquent property taxes and file the lists in court, initiating a lawsuit against each property owner.[41] The counties must mail notice of the lawsuit to the property owners.[42] If the property owner fails to file a response to the lawsuit within 20 days, the court enters a judgment for the property taxes.[43] If the property owner does not pay the property tax judgment by the deadline, ownership is transferred to the state.[44] The property owner has three years from the date of the conveyance to the county to redeem the property by paying the total taxes, accrued interest, fees, and costs, and the county must provide notice to the property owner of their right to redeem.[45] If the property owner cannot afford to redeem the property, Minnesota law provides the option of filing a "confession of judgment" requiring the property owner to agree to the entry of judgment against them, but this process permits the tax debt to be...
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