Report On El Dorado County, CA, Tax Sale, Nov 8, 2003

Nov 7, 2003, I attended the El Dorado County, CA, tax sale. A huge turnout--over 200 people, the board of supervisor's chambers--which has just under 100 seats--was packed, with people sitting in the aisles, standing against the wall, and standing out in the hall listening on a speaker system.

There were apparently no improved properties for sale. There were about 46 land parcels, 31 of which the tax collector announced as having 1915 act bonds on them--that remain on the property after the tax auction--and they were in judicial foreclosure. These were lots in two failed subdivisions. There were also 195 timeshares at three resorts at South Lake Tahoe.

I had not researched the land parcels, as I was not planning on buying any, since I was there to experiment with buying time shares. However, I sat next to an investor that I have met several times at tax sales over several years: he said that he felt people were paying market value for the properties. From the ratio of opening bids to final bids, I have the feeling some of those properties were probably going for more than market value.

One property sold for $10,000, and somebody said "you just bought 20 square feet." I looked it up on the map, and, sure enough, it is one foot wide and about 20 feet long right next to a street. Sure does not look to me like a good deal. Lots more money than brains there, I would theorize. For that kind of money, I bought three houses in Oklahoma last June, two of which are producing rent. The other needs extensive repairs to be rentable.

Many people before the sale were looking at the assessor's parcel maps to decide upon what properties to bid. At least they probably avoided bidding on the 20 square foot property. But I find this to be folly. I recommend actually seeing properties before buying them at tax sales, even if you are only spending a couple of thousand dollars for them. Many properties going to tax sales are junk properties. As John Beck often says, sometimes those properties are being abandoned for their owners, and there is good reason they are doing so. Why continue to pay taxes on properties that have little or no value?

Of the 195 timeshares offered, 37 sold the first time through, many for up to about twice their opening bids, which ranged from $700 to $1,400, most opening bids being under $1,200. The highest price paid was $2,500 with several selling at $2,300. I bought seven, three for their minimum bids of $700, one for the minimum of $1,0 0 0, and two for $1,700 that had started at $700 and $800. These two had an assessed value of over $7,500, but I don't know if they will resell for that. I hope they may resell for about $2,500-$3,000, but that is from checking out comparable sales. It is an experiment, so I will see.

The timeshares were offered up again twice, all starting with $700 minimum bids, and 45 more sold, for a total of 82 out of 195 selling. A couple actually got bid up to over their original opening bids which were about $900 to $1,100. Most sold for the minimum or $800, a few for $900.

Tax sales now draw huge crowds, many of whom don't know what they are doing. During the latter part of the time-share sale, the tax collector asked how many attendees had been to a prior tax auction in El Dorado County. Only about 1/5 or fewer of the people raised their hands. Beginners, many of whom may not know what they are doing. Some, with more money than brains, overpay for properties.

The tax collector announced that they had sold more timeshares than ever before. I know that to be true, having seen about three or four other sales there, where only about 15-25% of the timeshares had sold.

Here in CA, a property owner can claim any excess proceeds from the auction of his/her property at the county tax sale--the difference between the price paid and the tax collector's bill.

Get on the right side of the tax sales when they are drawing so many foolish bidders.

It now becomes worthwhile to buy junk properties in CA, stop paying the taxes, and let them go to sale in the tax auctions. Suppose you had bought that 20-square foot parcel for a $100? The tax collector would have taken out about $600 for the tax bill and you, as the owner, could have collected over $9,400 of the sales price. And that property was assessed in value at $36, so it is likely that the property owner, whose last deed was recorded in 1965, might well have sold for $100, or even less. There are several other one foot wide parcels along that street. Might it be worth it to buy those and hope a similar buyer shows up at a future tax sale and overbids for them? I think so.

Last year I sold a property through the tax collector of Contra Costa County, CA, the county East of where I live. I bought the property many years ago for about $2,500 from the owner before a tax sale. I stopped paying the taxes about 7 years ago. It sold last year for $52,000 and I got over $47,000 from the excess proceeds this year. This was a 1.92 acre parcel between $1 Mill plus homes in an upscale community. That is the good news. The bad news? Half is vertical cliff, the rest is steep, unstable soil. There is a deep, steep canyon between it and the road. And it is landlocked, it does not have access to the road. So one would have to get the ajoining property owner to agree to sell or provide an easement over part of their land.

So, these days, if the tax sales in your area allow you, as the property owner, to claim excess proceeds from the tax sales, I recommend buying junk properties for no more than a few hundred dollars, do not pay the taxes, and wait to see what they sell for at the county tax auctions. You will be on the "right side" of the auction, and you might well make substantial money with minimal investment and little effort.

Good Investing***********Ron Starr************