What happens to a piece of real estate when you don't pay your property taxes? The taxing agency (usually the county) can seize the property for delinquent taxes and put it up for auction. Some real estate pros have used this method to buy houses to flip.
Did you know that timeshares can also be seized for tax default and auctioned by the government? El Dorado County in California (where a number of Lake Tahoe timeshares are located) recently announced a timeshare tax auction, and other localities have done this, too.If you don't pay the tax, you could lose the property
How a typical tax auction works
When you own real estate, you have to pay property tax, typically to the county where the property is located. If you don't pay, then you'll get notices about non-payment, late fees and penalties, and finally a notification that the government may take your property.
If you continue not paying the taxes for a few years, the process continues step by step until eventually they seize your property for delinquent taxes. After taking ownership of your real estate, the county can then auction it off and sell it to the highest bidder.
Auctions are generally conducted online these days. You register as a bidder, and will probably have to put down a deposit up front. Bidding will go on for a set number of days. At the end of the auction, the highest bidder wins - they pay for the property and take title. Losing bidders get their deposit back. See more at Wikipedia - Tax deed sale.Nowadays the auction you want is likely to be online
Tax auctions selling timeshares
From the government's standpoint, they're treating timeshares like other real estate as far as delinquent property taxes and sale via a tax auction.
Timeshare Tax Sale Items being offered at public auction tax sale by the El Dorado County Treasurer Tax Collector are a deeded interest or ‘right to use’ a particular unit or unit type within the timeshare association for a specified interval of time on an annual, biannual or seasonal basis, as described in the legal description of the timeshare interval. It is the tax defaulted timeshare interval that is being offered for sale at public auction; not the entire building nor Timeshare Association.
Here are a couple of my thoughts.
- First of all, it's a bit different than just buying a piece of land. When you buy a timeshare, you essentially take over the contract that the previous owner had with the timeshare company. You assume all the contractual obligations they had, such as paying annual maintenance fees.
- Secondly, the description mentions that it could be a "right to use" timeshare, but there must be a deed involved in order for them to collect property taxes on the timeshare and auction it off.
Sample tax auctions including timeshares
The El Dorado County timeshare auction is slated for early November. It includes 224 timeshare properties in Lake Tahoe, including the Tahoe Seasons Resort, Tahoe Beach and Ski Club, Lake Tahoe Vacation Resort, Marriott Vacation Club Timber Lodge and Heavenly Valley Townhouses.
Riverside County, which includes Palm Springs, also had a tax auction, and this one included 299 timeshares.
If you're curious about how these auctions work and what type of prices things go for, it's interesting and educational to take a look through the listings and watch the auction results.
Potential issues with buying a tax auction timeshare
- Unpaid maintenance fees - A government agency won't seize a property for delinquent taxes until they have been in default for several years. In the case of a timeshare, this means that the owner also didn't pay the maintenance fees for those years. When you buy the timeshare, will you be responsible for paying those back maintenance fees?
Normally, the answer is that you should NOT be liable for back fees, but don't bid on anything until you get this totally clarified. Check with the resort and with the government agency that's handling the auction. Make sure you get a definitive answer.
- Other liens on the property - If the previous owner of the timeshare wasn't paying their taxes and maintenance fees, it's a sure bet that they weren't paying any outstanding mortgage payments on it either. Could another lien holder come after you for payment?
Normally in a tax auction, mortgage debts are eliminated, but other governmental liens may still apply.
Prospective purchasers are advised that some bonds or other assessments which are levied by agencies or offices other than the treasurer-tax collector may still be outstanding after the tax sale; in addition, the I.R.S. has the option of redeeming, up until 120 days after the sale, any property on which there is an I.R.S. lien recorded.
- Clear ownership - In some places, the original owner has a certain period after the sale to decide they want that property after all, pay all the back taxes (with interest and penalties), and retake possession of their real estate. For instance, if you bought a house in Tennessee via a tax auction, the previous owner could come back anytime in a a 1-year period and retake that house by making the necessary payments.
It's hard to imagine that somebody would go to these lengths to get a timeshare back, but nevertheless, it may be a possibility. Check the laws in your area for details.
- Regional differences - Different states and counties have different laws regarding timeshare properties and tax auctions. You can't just rely on someone else's experiences with buying at a tax auction, since the rules may well be different somewhere else.
- Current year fees and taxes - If you buy a timeshare in November 2013, what does that mean for the 2013 maintenance fees, taxes and usage rights?
The auction proceeds will cover all previously due taxes, but you may have another tax bill coming up soon. As for maintenance fees, even though you shouldn't need to pay 2010, 2011, 2012, you may still owe fees for 2013, and have limited time left to use that 2013 timeshare. Once again, make sure you've got this researched before you bid.
- Limited information - Here's the description from the auction for one of the timeshares at the Lake Tahoe Vacation Resort:
Timeshare Parcel Details
Code: 2 U 045 47 W
Description: UNIVERSAL ANNUAL
Minimum Bid: $2,600
Say what? Aside from the fact that it's an annual timeshare, it's unclear as to what exactly they're selling here. You'd need to do some research with the resort to find out what this really means.
- Need to deposit money up front - You can't just bid on something and then come up with the money later. The way many tax auctions are conducted (like this one in El Dorado), you need to deposit in advance an amount that covers at least a minimum bid plus a service charge. If you don't win anything, then you get your money back.
- Right of first refusal - Does the company's right of first refusal apply in the case of a government tax auction, like it would in a private party auction via eBay? If it does, then you may go through all this work to win a property, only to find out that they grab it out from under you.
- May not be the best price - While you may be able to snag an underpriced gem on a tax auction, some of these timeshares don't look like very good deals to me. Typically the minimum bids are based on outstanding taxes owed, but they must have a huge amount of penalties for the unpaid tax bills to add up to the fairly steep minimum bids on some of these.
In any case, it pays to shop around. For instance, there are a bunch of timeshare units from the Tahoe Seasons Resort included in the El Dorado auction, with minimum bids of $1,100 and up. Meanwhile, there's one for sale over on eBay with a current price of $1. I haven't compared the details on these, but if you're in the market for one of these it would be worth your while to do some research.
So what's the deal with these auctions? On the plus side, it's possible that you'll end up with a good buy out of these auctions. People have done so, found some good bargains, and been very happy with the process and their purchases. On the negative side, you can see that there's even more than the usual amount of due diligence you'll need to do.
How to find out about future tax auctions?
If you're looking to buy a bargain timeshare in a tax auction, then keep an eye out for upcoming auctions. Here are a couple of ideas:
- If you know where you want to buy, then check with the government agency in that area that handles property taxes. Ask them about what timeshare inventory they have on the books, when they plan to have another auction, and how you can get more information.
- One website that handles a number of government tax auctions is Bid4Assets.com. You can check their County Tax Sales listing, and see a calendar of upcoming auctions. You can also do a search on the keyword "timeshare". In my tests, I found that the keyword search showed just a small fraction of the timeshares out there, so that function isn't very reliable, but you can give it a try and see what it turns up.
Auction results and closing thoughts
The Riverside auction is now closed, so I ran through the results to see what happened. Very interesting!
- Among other listings, the auction included 140 timeshare units from the Plaza Resort & Spa in Palm Springs. Only 3 of these are marked Sold, while all the rest just say Closed.
- If the government still owns the 137 units that went unsold, then I'm sure they're not paying the maintenance fees on those, which means that portion of the costs must be absorbed by other owners.
- On these 140 units, the minimum bids range from $550 to $7,862. Since it lists the annual tax bill on one of these units at $27.16, how long must the bills have been unpaid to add up to over $7,000? I don't know how interest and penalties are calculated, but it would seem this has been accumulating for many years.
- If they're unsuccessful selling at auction, how many years will the government hold onto these? If they keep auctioning at increasing minimum bids (because unpaid taxes keep mounting), that doesn't seem like it will ever be successful. Who's going to be attracted to a $7,862 minimum bid? That's hardly a bargain. Like some timeshare owners desperate to sell their units, the government seems to be having trouble getting rid of these.
- One of the sold units here was listed with minimum bid of $5,961, but ended up selling for $550. This shows that in some cases you might be able to buy one of the timeshare units for less than the minimum amount listed. Contact the county agency to see what's possible and how you could do that.