Buyer beware: Properties bought in Stanislaus County tax auctions can bring headaches

The parcels sold at county delinquent tax auctions might seem too good to be true.

A winning bidder can pay less than $10,000 for a residential parcel, which can be resold for a quick profit or turned into rental income. It can also be a live-and-learn experience when buyers discover liens, hidden costs or other serious headaches with the parcel they acquired.

Art Rossetti, a semiretired businessman, tried to warn people about an abandoned lot at 419 S. Conejo Ave., one of the 67 parcels in Stanislaus County’s delinquent tax auction last week. The county spent $20,000 in August removing a fire-damaged house and weeds from the airport neighborhood parcel but did not record an abatement lien before it was put up for auction.

Rossetti said he was told by the county building division he would need to compensate the county for the cleanup costs if he paid the back taxes, assumed title and applied for a building permit. But the county did not tell potential bidders about that requirement before selling the airport neighborhood parcel at last week’s auction.

“It’s like a used-car dealer knowing something is wrong with a vehicle and jury-rigging it just to get it off the lot,” Rossetti said.

The Manteca resident said he lent the previous owner money to buy the quarter-acre parcel on South Conejo in 2007 and has no hope of collecting what he is owed. After the owner failed to pay the annual tax bills, the county exercised authority this year to sell the parcel for the $6,200 in taxes and penalties.

Rossetti said he spoke with Assistant Treasurer-Tax Collector Jegan Raja early this month, saying it was premature to auction the parcel because bidders won’t know about the $20,000 abatement lien. The county’s costs included $14,000 to pay a contractor to clean the lot and $6,000 for administration, Rossetti said.

Raja said the Board of Supervisors had approved the parcel sale, and it could not be postponed based on a future lien.

Rossetti vowed to tell potential bidders at the Nov. 13 auction about the abatement cost. Raja said he could talk with people before the sale but would be removed if he interrupted the auction held in the county board chamber at Tenth Street Place.

During registration for the auction last week, Rossetti handed out fliers with a warning about the parcel. Raja ordered him to leave. Rossetti was permitted to distribute the fliers outside Tenth Street Place.

Raja told The Modesto Bee that Rossetti was ordered to leave for disrupting registration.

Janie Sisk and her cousin, Steve Horn, both of Modesto, were first-time participants at the auction and purchased the South Conejo parcel for $9,000. This week, they said county personnel did not tell them about the $20,000 cleanup when they asked about the parcel before the auction.

“A friend had told me to be careful because there sometimes are liens they don’t tell you about,” Horn said. “That is one thing we asked. I don’t think they should put it on the auction block if there still are underlying issues.”

Who foots the bill?

The treasurer-tax collector’s office has referred the matter to legal counsel to determine who owes the $20,000 to the county. It raises questions such as: Should the new buyer have to pay? Should the county try to collect from the former owner who didn’t take care of the property? And how does the county recover taxpayers’ money spent to eliminate safety hazards on property abandoned by owners?

County Counsel Jack Doering said the abatement action on Conejo Avenue had not returned to county supervisors for approval of the lien. The board reviews the details of the abatement work before a lien is put on the property tax bill so the county can recover its costs. Officials said the timing of an abatement and tax sale for a parcel do not always line up.

Doering said he will research whether the county still can legally collect the abatement cost from the buyer or former owner. “One possibility is it just disappears with the tax sale and we are left without any ability to recoup the cost,” Doering said.

If that is so, then the taxpayers lose out.

Treasurer-Tax Collector Gordon Ford said the new buyer won’t have to pay for the cleanup to assume title. Ford said his office will use the sale proceeds to pay the $6,200 in taxes and hold the remaining $2,800 for a year to allow anyone with claims to apply for the funds.

Rossetti said the former owner of 419 S. Conejo filed for bankruptcy protection and he doubts the county can collect from him.

Angela Freitas, director of county planning and community development, said the building division collects abatement costs before building permits are issued if there is a lien on the property.

Doering said the county pays more than private individuals to abate derelict properties, which is why the owners are given every opportunity to do it themselves. The county has to use staff time sending notices to owners, getting approval for abatement and bidding the cleanup work, and then it is obligated to try to recoup those costs.

Cleanup at Indalex

It could be more difficult to recover public funds spent on abatement and cleanup of the former Indalex Inc. site in north Modesto, which also was on the auction block last week.

The minimum bid was set at $474,500 in an attempt to collect unpaid property tax, school bond assessments, fire district tax, penalties and interest, Raja said. The figure did not include $45,213 spent to remove hazards from the abandoned plant in 2011 after the county could not find a responsible party.

The former aluminum plant closed in 2008 and the company filed for bankruptcy protection in Delaware in 2009. Trespassing scavengers largely dismantled the facility two years later.

The county Department of Environmental Resources could seek to recover $26,000, including costs for overseeing federal and state agencies that removed toxic materials from the property after an August 2010 tank leak and permit fees that Indalex never paid, director Jami Aggers said. The federal government spent $561,000 on the cleanup, and the state’s costs were $123,000, with neither amount including staff time, Aggers said.

No one bid on the Indalex property at last week’s auction. The county will try to recover costs from the abatement and cleanup if the property is sold at next year’s sale, but the federal and state agencies could expect payment as well, Doering said.

“There is a good chance the county won’t get full recovery for how much money it spent there,” Doering said.

Ford said his office typically would put a lower starting bid on the Indalex site at next year’s auction, so the county may not even recover all of the previous taxes. “My charge as tax collector is getting parcels back in production to where property taxes are being paid,” he said. “If it sits idle, no one is paying the property tax.”

This story was originally published November 21, 2014 at 5:30 PM with the headline "Buyer beware: Properties bought in Stanislaus County tax auctions can bring headaches."