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In the prior two posts I discussed how different subdivisions can have different tax rates and what taxing districts contribute to the total tax rate. One of those taxing districts is a "metropolitan tax district". What are they and why is it important to know about them?

A "metro district" as it is sometimes called is a particular kind of legal entity that has the power to levy taxes on the properties within its boundaries. They are sometimes used to get the infrastructure in a new subdivision started--including streets, water and sewer lines, etc.

You can imagine that it takes a lot of money to go from a piece of raw land to a subdivision that is ready for homes to be built on it. Think of a home set it the middle of a 5-acre lot in the country. What would you have to do on that lot before starting to build your home?

That's what a developer must do--survey, plot a development plan, get permits, grade the land, build streets and sidewalks, put in utilities and more before building even one home. To get the money to do all of that, the developer might form a metro district that can sell bonds. The bonds will be paid back from the taxes levied on each of the homes built in that subdivision.

This is where a problem might arise. The Colorado Contract to Buy and Sell Real Estate has a section the legislature requires to be printed in all-cap bold type called "Special Taxing Districts". This paragraph was added after some infamous cases in the late 1980's and early 1990's where homeowners became liable for taxes that were impossible to pay. Bankruptcies and court fights finally were settled, leaving those areas with high taxes but not so high as to be impossible to pay.

The homeowners were stuck because the special taxing districts were required by law to raise enough money from real estate taxes to pay off the bonds they had sold. But because the housing market crashed, districts that counted on 1,500 homes for their tax base only saw a few hundred homes built. They had no legal choice but to raise the levy on all the existing homes.

In those cases, homeowners couldn't pay the taxes and couldn't sell their homes until the cases were settled. It was a mess until it finally worked its way through the courts.

The point for homebuyers here is to pay attention to Section 8.d. of the Contract to Buy and Sell Real Estate which is in BOLD ALL-CAP TYPE. Your Realtor® may know something about it but for your safety, know that it says the buyer should investigate the financial stability of these districts. This is a good place to have a real-estate attorney's advice.