In 2009, the treasurer sent 4,160 tax liens to auction; it was the highest figure in at least a decade. This year, tax liens sold at auction seemed to normalize, returning to a pre-market-crash level of 2,630.
That would seem to indicate that property owners are perhaps back in the pink and eager to meet their civic obligations. But that’s not necessarily true, based on a number of factors.
Robert Packard, a tax attorney at Robinson & Henry in Colorado Springs, believes that the drop in the number of tax liens is a reflection of today’s continued soft building environment.
“You see a lot of liens arise when you have a lot of construction and development,” he said. “When construction drops, you see fewer liens, so this could be a result of less construction activity.”
The dollar amount of this year’s tax liens also suggests that the properties accruing back taxes are more expensive than in years past.
The county netted $6.1 million at this year’s auction. This was behind only the 2009 auction dollar value, and was higher per property than at any point in the last 10 years.
Bankruptcies are another distorting factor that can paint a falsely brighter picture by lowering the number of tax liens sent to auction.
“We don’t accept tax liens if a bankruptcy has been filed on a property,” said Judy Hardwicke, Administrator for El Paso County Office of the Treasurer.
This directly applies to one of El Paso County’s messier land deals. Jannie Richardson runs SRKO Family Limited Partnership and was the head developer at Colorado Crossing before that project fell apart.
Back taxes are due on the property, although tax liens were not sent to auction because SRKO filed for bankruptcy in February.
But another of Richardson’s companies, Ho LLC, has not filed for bankruptcy and did have properties listed in this year’s auction notice. Richardson would not comment on whether Ho LLC’s taxes were paid before the auction.
Tracking the web of developers, properties and investors in the tax lien auction world can be a murky business.
Property taxes from the previous fiscal year are due in either one full payment on April 30, or in two installments on March 1 and June 16. The treasurer sends out delinquency notices at the end of June, and the office issues a sale notice of tax liens projected for auction in late September.
Poring through the auction listing to tie a developer or homebuilder to a property is like trying to tie campaign financing to a special interest group. Developers will set up blind limited liability corporations in order to separate their investment interests, and this can mean that the same developer uses a different company name for every project.
The auction is further complicated by the fact that not all the tax liens listed for sale in the treasurer’s notice will end up going to auction. Some property owners will pay their taxes in the month between the sale notice and the auction, and there are myriad reasons that a developer might pay on this extended timeline.
Lowell Properties Director of Development Mike DeGrant said his firm was at the mercy of market forces after getting tied up with a high-profile loser in the 2008 financial crisis.
“We own a few projects in town where we partnered with Lehman Brothers, who filed for bankruptcy in September 2008 and didn’t get bailed out like everyone else,” he said. “We had to work out a new partnership agreement before Lehman would step up and pay those taxes.”
There are also strategic reasons that a firm might drag its feet on a property tax payment.
Ted Blume of Cygnet Building Holdings LLC had properties listed in the latest tax lien sale notice, but his firm submitted payment to the county shortly before the auction. This is common practice as cash has become an increasingly precious commodity because of the rigid lending environment.
“There’s no cooperation from anyone in town right now, you can’t get money to develop any of your land,” Blume said. “As far as cash flows go, you’re stuck between a rock and a hard place. Sometimes you just have to sit on the cash that you have.”
Earl Robertson, head developer at Lowell Properties, said that in this environment some developers view a tax lien as a short-term loan.
This year, property owners are paying 10 percent interest to an investor who buys their tax lien, and will be on the hook to the county for only a 1 percent monthly fee on the back taxes they owe.
“You’re not in much risk if you decide to put yourself in that position because you have three years to redeem the lien,” Robertson said. “It’s a cash crunch for everybody right now. If you need the cash, that’s something you can do.”
Tax liens that aren’t sold at auction are “struck back” to the county, but are then available for purchase over-the-counter at the treasurer’s office. Hardwicke said the county typically recovers 99.5 percent of delinquent property taxes through the auction.