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Tax-default auctions offer good deals but buyer beware - By Corrie M. Anders, OF THE EXAMINER STAFF Sunday February 5th 1995
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Tax-default auctions offer good deals but buyer beware SAN FRANCISCO - Every year, starting about now, local governments across the country offer investors a rendezvous with some excellent real estate deals. The venues range from the tiny hallway outside the sheriff's office in Kanawha County, W.Va., to the affluent resort town of Sedona, Ariz., to the urban cores of Los Angeles, Oakland and Detroit. But no matter where, each scenario involves a public auction conducted by city and county governments anxious to collect back taxes from property owners who fail to pay up, despite a one- to five-year grace period. The first round of tax-default auctions comes up in this month Februaryin California and Arizona, two states with different approaches but deals that investors find attractive. In Florida and about 30 other states, local governments sell tax lien certificates, which investors can buy for the amount of back taxes and assessments. Investors earn a high rate of interest on their money - up to 24 percent a year depending on the state - and the right to foreclose. If the property owner misses the redemption deadline, most liens and mortgages are wiped out and the property is turned over to the investor virtually debt free. Highest bidder wins In most other states, including California, the property is sold outright to the highest bidder at tax default land sales. That provides the opportunity for investors to pick up real estate below its actual value. In the past, a tax-default auctions was the purview of local investors or town folk looking to buy property for their own use - the vacant lot next door, for example. That's been changing over the last few years, thanks in part to real estate lecturers on the seminar circuit. Sales now draw lots of out-of-towners - from small syndicates to banks and astute retirees looking for a higher rate of return than they can get from CDs and bonds. "Banks weren't in this until about 10 years ago," said Bud Brodie of the treasurer's office in Dade County, Fla., which last year sold $70 million worth of tax lien certificates that carried interest rates of up to 18 percent. Not choosy "Banks buy almost anything. But they do try and back off bad areas," said Brodie. The Dade County sale this year will be held on June 1. Many out-of-town investors travel to the auctions and return home when it's over. But some hang around after their purchase - especially if they're in a resort area - for a mini-vacation and write off the trip as a business-expense tax deduction. Really wrong address Rob Friedman of Irvine, a veteran buyer whose family has been investing in tax-default land for 20 years, said he once looked at the wrong map "and literally bought a street that was unusable." Still Friedman and other long-time investors said buyers who carefully "do their homework" can avoid buying trouble instead of a bargain. The bonus is the type of deal Friedman achieved five years ago when he bought several lots in Palm Springs for $1,200-$1,500 per lot and sold them two years later for $15,000 each. In California, the minimum bid for a parcel is the amount of the delinquent taxes plus penalties. The properties come in all price ranges, affording everyone from nickel-and-dime investors to heavy hitters the chance to participate. The best opportunities are in the higher price bracket and in rural communities where there is less competition, said Sacramento attorney Al Seastrand, who's been investing in tax-default land for 10 years and has compiled a manual on sales in California's 58 counties. "There are few people in the $50,000 to $100,000 (investment) strata," Seastrand said. "One hundred thousand dollars could get you a property assessed at $300,000." Land will go on the auction block in a dozen or so California counties, including Los Angeles County Feb. 6-7 and Contra Costa County Feb. 22. Seventy-one properties are scheduled to be sold in Contra Costa County. The lowest minimum bid is $1,300 for a little lot in Orinda. The highest minimum bid is $422,000 for a piece of land in San Pablo. Not all of the 71 parcels will be auctioned off. As frequently happens, many property owners pay off their back taxes just prior to the sale. In 1994, Contra Costa County started out with 99 tax delinquent properties - and only nine were sold. Arizona holds the country's first tax lien certificate sale. Phoenix's Mariposa County has the largest number of delinquent parcels - about 22,000 - and will hold its auctions Feb. 6 through 17. Arizona counties pay 16 percent annual simple interest on the amount of back taxes and assessments. Investors bid on the amount of interest they will accept - and aggressive bidding can push the interest rate lower. Some states pay even higher interest. Lien-certificate holders in Iowa, whose sale is June 15, get up to 24 percent; the June 1 sale in Florida pays 18 percent. Investors in Michigan get 15 percent the first year, but 50 percent the second year the bill is not paid off. Most counties that sell tax-lien certificates will deed the property to the investor if the property owner fails to meet the redemption deadline - at least one year after the sale. It does happen that an owner fails to redeem the property, but most pay off. * Each county within a state conducts its own sale, often on different dates. Since there is no central repository of information about tax-default sales across the country, here's how to find out about particular auctions. Call the county treasurer's or tax collector's office and ask when and where sales will be held. For a small fee, many also will send you a list of properties scheduled to be auctioned off. If you don't know the name of a particular county, call directory assistance in a city that interests you, find out the name of the county, and obtain the number for that county's treasurer's office. Corrie M. Anders, an Examiner staff writer, covers real estate and housing. His Investing column appears every Sunday. You can write him at The Examiner at 110 Fifth St., San Francisco, CA 94103, or via e-mail c / o sfexaminer@aol.co |
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