Bank Loans $436,989 then Stands Aside as Liened Property Sells at Tax Deed Sale for $15,185.

Lenders usually bid to protect their interest. Why did they just walk away?

Palm Coast, FL – October 25, 2009 – Lenders historically attend foreclosure auctions to protect their interest in the property. They come prepared to bid up to the outstanding balance of the loan or to their estimate of net market value, whichever is less. This assures that they will reap as much as possible from the sale proceeds to mitigate their loss. It would normally be unthinkable for a lender to let a liened property sell at a tax deed sale for a small fraction of the mortgage amount; in this case, 3.47%. Yet that is exactly what one lender did.
The property was a lot in The Conservatory, an upscale Palm Coast development surrounding a Tom Watson signature golf course, a project conceived by real estate developer Ginn-LA (Bobby Ginn and his financial partner Lubert Adler). The lot was purchased in April ’05 for $425,900, financed by a  $436,989.75 mortgage from Wachovia Bank.
Forty-two months later, the lender took no action as the lot sold for $15,185 at a Flagler County tax deed sale last week. The sale amount was the minimum bid; representing the sum of all delinquent property taxes, interest, and penalties. There was only one bid.
The mortgage lien is typically erased by the tax deed sale, so while the bank still has recourse against the borrower, it has no further claim against the property itself. By allowing someone else to buy the lot, Wachovia gave up their only collateral.
What choices did the bank have in this uncharted territory of severely upside down borrowers? If it assumes ownership through either a tax deed sale or foreclosure, the bank is liable for special assessments and future Property Owners Association (POA) fees and property taxes. Then they have to sell the property, receiving only the net amount of the sale (i.e. less real estate commission, documentary stamps, title insurance, and any other transaction costs).
If they foreclose, they have the additional obligation to pay up to six months’ delinquent POA fees. And they still have to pay back property taxes.
Lots in The Conservatory are not selling at a brisk pace. At the time of the Tax Deed Sale, there were 5 lots for sale for less than $30,000 (now six). One as yet unsold lender-owned lot carried a price of $22,900. Wachovia simply decided that it was more prudent to let the Tax Deed Sale proceed.
The same bank notified the Clerk of Courts office that it plans to allow another Conservatory lot (#173) on which it holds a mortgage to sell at the November 17th tax deed sale. It’s one of two Conservatory lots scheduled in that sale.
For those interested in tax deed sales, here are the ground rules from the Clerk of Courts’ website:
Ground Rules for Tax Deed Sale
Per Florida Statute 197.542
  1. Bidding starts at the amount needed to pay the outstanding taxes, interest thereon, plus all costs related to said sale. If there are no higher bids, the land shall be struck off and sold to the certificate holder, who shall forthwith pay to the Clerk the documentary stamp tax and recording fees due, and a tax deed shall thereupon be issued and recorded by the Clerk.
  2. The high bidder shall post with the Clerk a non-refundable cash deposit of $200 at the time of the sale, to be applied to the sale price at the time of full payment.
  3. The Clerk shall refuse to recognize the bid of any person who has previously bid and refused, for any reason, to honor such bid.
  4. If full payment of the final bid and of documentary stamp tax and recording fees is not is not made within 24 hours, excluding weekends and legal holidays, the Clerk shall cancel all bids, re-advertise the sale as provided in this section, and pay all costs of the sale from the deposit. Any remaining funds must be applied toward the opening bid.
  5. Payment must be made in the form of a cashier’s check, certified check, money order, or cash – personal checks or business checks will not be accepted.
  6. Valid Photo ID will be required for all bidders.
  7. If these requirements are not met, the sale will be rescheduled no later than 30 days from the original sale date and will be published in the following Wednesday’s Issue of the Flagler-Palm Coast News Tribune.

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7 replies
  1. George
    George says:

    Loss for Wackovia now gain for buyer

    The loss gets written off and no taxes will be due, and posible a refund will result for Wackovia. The new owner upon sale will pay at their nominal tax rate (highest)on any profit made. Holding on to it will only cost the buyer all the real estate fees and HOA fees. The property assesments have dropped to around $65,000 for these lots, as determined by the county appraiser, so about $1,500 plus HOA will eat at profit if the property does not increase in value. If the county appraiser is right in valuing the property, by statistical average the lot is 20% of the buildout value then a home built should be in the $305,000 range. That will build a 2500 square foot building with moderate design. The origional sale price of $425,000 for the lot would have supported a buildout of $2,125,000. Of course that was a pie in the sky dream, that even in a good real estate market would not have happened. Bobby inflated sales prices just like his blimp, and just like his blimp all the the value disappeared. The lots should have sold for under $200,000 as a $1,000,000 in a good market may have been realistic. The lots are so small that upon buildout it will look like row houses. Another big mistake, as lots for high end homes should be twice the size. The future will probably put the lots at a slight premium over other golf lots, probably around the $200,000 range buy the year 2020.

  2. John
    John says:

    Congratulations to the buyer!

    Whoever this buyer was I would like to shake his / her hand. This is the way money should be made in RE. You wait patiently until there is a good deal to be had then you strike. It takes market knowledge, patience, instincts, & of course money. Nothing would make me happier than if this person is able to double or triple their money sometime in the future. It would be even sweeter if the new owner is one of another botched property developed by Ginn therefore hedging their bet. Like I said in a prior post when everyone else is selling the smart guy should be buying. In a few years we will look back on this time as the greatest time in recent history to buy real estate.

    Congratulations to the buyer on a great deal!!!!

  3. John
    John says:

    Legal question

    This is a question for the attorney’s out there. What are your thoughts on this lot being sold at the tax deed sale and the effect it will have on any potential deficiency judgment for the prior owner?

    The bank stepped aside and let it go for $15k. Can they even make an argument in court that the max value of the property was $15k?

    I have my doubts they will pursue a judgment based on everything wrong with this property and the lawsuits, etc. but that asside what would the protocol be otherwise?

  4. Bill
    Bill says:

    He over paid by $10,000

    How is $15,185 a good deal. A community that may never get finished,a golf course that may go belly up and future large HOA assasments. The lot’s not worth $5000. OH and how much is membership at the golf course??

  5. Toby
    Toby says:

    Reply to Bill

    I disagree. Yes, there is a risk the golf course closes and there is a risk the POA issues a special assessment, but the POA is now under the control of the property owners, not Ginn. They have worked to reduce POA expenses – fired Ginn Security and Ginn Property Management. They’ve also renegotiated the contract with Austin Outdoors. So the downside risk is the original investment plus accumulated POA fees and taxes, and possibly a special assessment which would not likely be more than $5K. Taxes will go down again next year because assessments will be based on this year’s selling prices. But the upside is much larger. Once, and if, construction begins, these lots will return to their intrinsic value – nowhere near the original sale price, but well above $15K. Small down side risk and big upside reward – sounds like a good investment to me.

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