Special tax districts and metro districts have been in the news again. As new subdivisions pop up along Colorado’s Front Range, it is prudent for today’s new home buyer to do some research.
First of all, what is a special tax district or metro district? It is a tool that has been around for years to finance infrastructure of a new subdivision for urban services such as streets, water/sewer lines, fire protection, etc. Back in the 1980s it was primarily used when a subdivision was outside a city’s limits or when a city did not have the ability to provide the infrastructure.
In May 2019, our local IRES Multiple Listing Service (MLS) for home listings announced that a field was added to disclose whether or not a home is located in a special tax district or metro district. That’s because in recent years using such a district to finance infrastructure for a subdivision has proven to be a successful method and therefore has become more popular.
But let’s back up a few years to look at the history. All the way back to the mid-1980s the Colorado Real Estate Commission added a clause to our standard residential real estate contract, that added a clause to our standard residential real estate contract that reads as below. (See clause below).
Think back to the 1980s – if you were alive then. There was no Internet, social media, or texting. Nowadays we realize that when you type in all caps, it’s seen as SHOUTING. The Colorado Real Estate Commission chose not only to put the above clause in all caps, but BOLD, too! That’s like shouting at the top of your lungs with emphasis. Bottom line, something REALLY BIG must have happened to be trumpeting such a strident warning to homebuyers.
Indeed, something really big did happen! Rewind again back to the ‘80s. During the ‘70s there was a real estate boom in Colorado. The ‘80s arrived and we had the oil glut, the savings and loan crisis, massive local layoffs, and 16% interest rates on home mortgages. Suddenly, you couldn’t give away a house. The real estate market was in the tank. The word “short sale” didn’t even exist in our vocabulary. Developers were banking on a strong real estate market returning, but it didn’t happen quick enough.
In Colorado Springs, there was a metro district called the Metex Metropolitan District. The city wasn’t willing to annex the land until seven miles of a four-lane road was built. The developer formed the metro district to fund the improvements with the plan to pay off the financing bonds through taxes paid for by the homeowners lining up to buy. The problem was that homes stopped selling and the burden of paying the taxes fell on the initial homeowners that bought. The mill levy ($1 for every $1,000 in assessed value) soared from 8.75 mills in 1987 to 31 mills in 1990. Homeowners already in the subdivision started walking away from their homes. Other districts even had worse problems. In one metro district, 5% of the users were paying 100% of the costs. Metro districts were given very bad press very quickly. It was then that the Colorado Real Estate Commission added the warning to the standard residential real estate contract.
The early 1990s arrived in Boulder County and the market was booming. There was an inventory shortage. Along came a new supply of homes: Rock Creek in Superior. The Rock Creek infrastructure was financed via a metro district. Thankfully for Rock Creek, homes were selling like hotcakes, and never experienced the Colorado Springs storyline. This is because once a subdivision is sold out, the risk of being in a metro district is reduced substantially. Could the Colorado Springs story happen again? Yes, it could, and hence the cautionary clause is still in our Colorado standard residential contract to buy and sell real estate.
As a homebuyer, your first step is to review the tax certificate from the County for the property that you are considering. That tax certificate will tell you all the entities that are receiving funds from your annual tax payment. Then you can investigate the purpose of each entity and determine the financial structure and risk that any entity might impose on the homebuyer.
There is a wealth of additional information to help homebuyers make decisions with regard to metro districts and special districts in a publication provided by the State of Colorado’s Department of Local Affairs (DOLA) at tinyurl.com/y5v8ropp.
For a complete understanding of these districts and how they might affect your homeownership, consult your Realtor® and your attorney.
By Duane Duggan. Duane has been a Realtor for RE/MAX of Boulder in Colorado since 1982 and has facilitated over 2,500 transactions over his career, the vast majority from repeat and referred clients. He has been awarded two of the highest honors bestowed by RE/MAX International: The Lifetime Achievement Award and the Circle of Legends Award. Living the life of a Realtor and being immersed in real estate led to the inception of his book, Realtor for Life. For questions, e-mail DuaneDuggan@boulderco.com, call 303.441.5611 or visit BoulderPropertyNetwork.com.
Special Tax Districts Clause.