Wellesley Gardens price drops as 3 bidders back out of finalizing tax foreclosure purchase
How much are undeveloped condominium lots worth in Washtenaw County?
Turns out that number is less than originally indicated by the late October tax foreclosure auction of the 218 undeveloped lots in Pittsfield Township’s Wellesley Gardens.
The winning bidder was in line to pay $245,000 for the lots, part of a 427-unit complex on Michigan Avenue near US-23.
But that buyer backed out shortly after the auction, setting into motion a series of events that finally is resulting in the fourth-highest bidder paying the final bid made during the three-day online auction conducted by Bid4Assets.com.
The final price for the property: Just under $100,000, Catherine McClary, county treasurer, said.
“The other three (bidders) backed out,” she added.
The issue, she said, appeared to be the taxable value of the undeveloped land, which in turn determines how much in taxes the new buyer will have to pay. In 2009, the combined tax bill for the 218 condo units was $150,000.
The bidders, before closing on the purchase, talked to the Pittsfield Township assessor to determine the property would be assessed at a significantly lower rate after the sale. With a dramatic drop unlikely, McClary said, that kept the financial calculations on the purchase in flux, and resulted in three potential buyers backing out of the deal.
They worried that the tax bill would be too high, since municipalities will set taxable value on an area's value trends, not a single transaction.
“They all told me it was too expensive,” McClary said.
One of the bidders, Fatih Kaplan, said “the taxes are the big deal” in that transaction, given the slow economy for new construction.
Kaplan and his partners all are employed in various professions and were tempted to invest in the property for an eventual foray into development.
The price and location were tempting, and even a small market rebound could yield a profit on the new construction by his calculations, he said.
But, he said, the carrying costs - namely the unadjusted tax bill - over the next 4-5 years made the deal unworkable if the assessed value wouldn’t change enough to reflect the low purchase price, he said.
“The taxes were going to hurt,” he said.
Kaplan and his partners had hoped to seek a guarantee from the township that the tax rate would reflect the low purchase price until they could develop the property. But before that could be negotiated, the auction company turned to other bidders.
Kaplan, of Lansing, expressed some relief that the deal didn’t work, though he and his partners are still looking for real estate opportunities.
“For anyone who can wait for a few years, I think it’s worth the investment,” Kaplan said of the Wellesley Gardens lots.
Meanwhile, McClary and her staff are waiting for the final buyer information to arrive from the auction company so they can issue a new deed. That will include the buyer's identity.
At the same time, they’re preparing a “chargeback” for Pittsfield Township, which received more than $1 million in anticipated taxes from the property over the past few years. With the actual tax revenue at about $100,000, the township will have to refund the difference to the county.
McClary also said the auction company is banning the non-performing bidders from participating in future auctions on the site. Because the bids represented a contract, "we could choose to take legal action," she said.