Be Careful When Attending Real Estate Auctions, You May End Up With A Lemon

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You may recall a television show from the 1980s called “Hill Street Blues.”

Just about every episode would start out in the squad room. Just before he would send the cops out for their duty assignments, Sgt. Esterhaus would admonish his troops, “Hey, let’s be careful out there.”

Every economic cycle seems to bring risk and opportunities.

You may go to a seminar, get on the Internet, or read in the papers the newest, latest and greatest way to profit in this cycle.

On Feb. 19, 2010, Gila County will have its annual tax lien auction.

At this event, there will be over 700 parcels put up for auction with delinquent property taxes. The tax lien auction gives investors the opportunity to buy these liens and earn up to 16 percent on their money.

The auction starts out with the bid at 16 percent and goes to a progressively lower rate depending on the desirability of the property.

If the delinquent property owners pay their tax bill, the investor will make a high rate of return on their money.

If the property owner does not pay their tax bill, the investor gets to keep the entire property for an extremely low price.

Sounds easy and as one pundit proclaims, you are a fool if you do not take “his” course on this easy road to big returns.

In reality it is not that easy for the novice. They will find professionals at this auction who have done their homework.

Without doing homework, here are just a couple of pitfalls that could and have happened.

Some properties are at auction because they are worthless and unbuildable (i.e. in a floodway). The owners have decided that it is better to lose the property than to continue to pay taxes.

If the property is not redeemed by the owner, you end up owning the worthless property, do not get paid any interest, and you get to start paying taxes on it.

Another scenario that has happened in metropolitan areas is that properties with contaminated soils have been let go for taxes. The novice bidder sees a great location, gloats at getting a property, only to find out years later when it is not redeemed that he is in control of a piece of contaminated land and the liabilities that go along with it.

Very few people have found the easy road to riches. As Sgt. Esterhaus says, “Hey, let’s be careful out there”.

Ray Pugel is a designated broker for Coldwell Banker Bishop Realty. Contact him at (928) 474-2216.

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