How can I sell a property I purchased at a tax sale?

Full question:

We applied for a deed to a property that was delinquent in taxes for 4 years. We now have the deed to the property. What should we do next? We would like to sell the property as soon as possible.

• Category: Real Property
• Subcategory: Deeds
• Date: 04/07/2025
• State: Colorado

Answer:

The answer to your question may depend on the type of deed used (and whether it stated you were to receive the property free and clear of all liens) and the existence of a tax lien on the property in question. Another important factor is whether you obtained title insurance and if so, whether your policy covers problems such as liens. Title insurance can guarantee that the title to a parcel of real property is clear of any claims or liens and properly in the name of the title owner and that the owner has the right to sell or otherwise transfer the property to another. Also, you may want to find out if there are any deed restrictions on the property that would prevent you from selling the property as an investor within a certain period of time.

The following is general information regarding deeds and tax liens:

A deed is the written document which transfers title (ownership) or an interest in real property to another person. The deed must describe the real property, name the party transferring the property (grantor), the party receiving the property (grantee) and be signed and notarized by the grantor. In addition to the signature of the grantor(s), deeds must be acknowledged to be recorded and acceptable as evidence of ownership without other proof. A valid deed must be delivered and accepted to be an effective conveyance. Most states assume delivery if the grantee is in possession of the deed. The deed also must be accepted by the grantee. This acceptance does not need to be shown in any formal way, but rather may be by any act, conduct or words showing an intention to accept such as recording the deed. To complete the transfer (conveyance) the deed must be recorded in the office of the county recorder or recorder of deeds in the county in which the real estate is located.

A deed may be avoided by alterations made in it subsequent to its execution, when made by the party himself or herself, whether they are material or immaterial, and by any material alteration, even when made by a stranger. The disagreement of those parties whose assent to the transfer is necessary may invalidate the deed. If the essential elements that make a deed legally effective are missing, a deed may be voided. For example, if a deed is delivered because of duress or undue influence, the deliverer may petition to void the deed on the basis that the offer, acceptance, or delivery was invalid.

There are two basic types of deeds: a warranty deed, which guarantees that the grantor owns title, and the quitclaim deed, which transfers only that interest in the real property which the grantor actually has. The only type of deed that creates "liability by reason of covenants of warranty" as to matters of record is a general warranty deed. If a deed is intended to be a general warranty deed, it should contain a phase specified by state law such as the phrase "conveys and warrants". These words, called operative words of conveyance, carry with them several warranties which the grantor is making to the grantee. Examples of the warranties include that the grantor is the lawful owner of the property at the time the deed is made and delivered and that the grantor has the right to convey the property; that the grantor warrants that the property is free from all encumbrances or liens and that the grantor warrants that he or she will defend title to the estate so that the grantee and the grantee's heirs and assigns may enjoy quiet and peaceable possession of the premises with the power to convey the property.

A quit claim deed contains no warranties and the seller doesn't have liability to the buyer for other recorded claims on the property. A quit claim deed conveys to the grantee and the grantee's heirs and assigns in fee all of the legal or equitable rights the grantor has in the property that existed at the time of the conveyance. An example of operative words of conveyance are "convey and quit claim." There are no warranties of title. The purchaser takes the property subject to existing taxes, assessments, liens, encumbrances, covenants, conditions, restrictions, rights of way and easements of record. The quitclaim is often used among family members or from one joint owner to the other when there is little question about existing ownership, or just to clear the title.

IRS liens are encumbrances against all property and rights to property of the taxpayer, something akin to a bank's mortgage on a house or a lien on a car, except that it encumbers everything owned by the taxpayer. It is non-consensual. That is, while a person may grant a bank a mortgage on a house in order to get a loan to buy it, or a lien on a car, the federal tax lien arises without regard to the taxpayer's permission or consent. Rights to sell real property subject to an IRS lien vary according to the type of ownership and state laws. For example, real property held as tenancy by the entirety may or may not be sold by the IRS for the tax liability of just one of the tenants, depending on the laws of the state. If you are giving up ownership of property, such as when you sell your home, you may apply for a Certificate of Discharge. Each application for a discharge of a tax lien releases the effects of the lien against one piece of property. Note that when certain conditions exist, a third party may also request a Certificate of Discharge. If you're selling your primary residence, you may apply for a taxpayer relocation expense allowance. Certain conditions and limitations apply. Generally, in order for the lien to arise, three things are required: the assessment of the tax liability, the demand for its payment, and the refusal or neglect to pay it.

The general federal tax lien is authorized by IRC §6321, which states the following:

If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person. Please see additional information regarding federal tax liens at http://www.irs.gov/businesses/small/article/0,,id=108339,00.html

The following is a Colorado statute:

39-1-107. Tax liens.

(1) Except as provided in section 39-3-135, the lien of general taxes for
the current year, including taxes levied pursuant to section 39-5-132,
shall attach to all taxable property, real and personal, at 12 noon on the
assessment date.

(2) Taxes levied on real and personal property, together with any
delinquent interest, advertising costs, and fees prescribed by law with
respect to any such taxes as may have become delinquent, shall be a
perpetual lien thereon, and such lien shall have priority over all other
liens until such taxes, delinquent interest, advertising costs, and fees
shall have been paid in full.

(3) Repealed.

(4) The property tax on a possessory interest in real or personal property
that is exempt from taxation under this article shall be assessed to the
holder of the possessory interest and collected in the same manner as
property taxes assessed to owners of real or personal property; except that
such property tax shall not become a lien against the property. When due,
the property tax shall be a debt due from the holder of the possessory
interest to the board of county commissioners for the county in which such
property is located or to such other body as is authorized by law to levy
property taxes, and shall be recoverable by such board or body by direct
action in debt on behalf of each governmental entity for which a property
tax levy has been made.