[REN #327] Investors Buy Exclusive “Private Street” in San Francisco

picture of gate and building for Real Estate News for Investors Podcast Episode #327

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It’s a real estate bonanza for two Bay Area investors that has turned into a nightmare for one exclusive San Francisco community. The city auctioned off their “private street” for an unpaid $14/month tax bill and a San Jose couple snagged it for $90,000. That’s turned the gated cul-de-sac into a hornet’s nest of angry homeowners who want their street back, but it isn’t the first time this has happened.

There are about three dozen multi-million dollar homes along Presidio Terrace. It’s so exclusive that it’s been home to names like Senator Dianne Feinstein, House Democratic Leader Nancy Pelosi, and former San Francisco Mayor Joseph Alioto. It’s so private that a guard is stationed at the gated entrance 24 hours a day and Google Drive isn’t allowed in there anymore.

The Presidio Terrace Association has been managing the common area for decades which, of course, includes the street, the sidewalks, and other common space, like the well-groomed street median. The HOA fees are $500-a-month according to NPR, but the paltry property tax bill for the common areas went unpaid for about 30 years. The city finally auctioned it off in April of 2015. The homeowners only found out about it recently.

Investors Saw an Opportunity and Grabbed It

The San Francisco Chronicle first reported the story. The tax bill was apparently sent over-and-over again to the address of an accountant who no longer worked for the homeowners association so the bill never got paid. The city also sent a notice warning residents of the auction, but that was also sent to the same wrong address.

Here’s where Tina Lam and her husband, Michael Cheng, walked into the story. They were very interested in buying something in San Francisco. In their search through city auction listings, they ran across something in Presidio Heights. They didn’t know much about the property — only that it was in a good neighborhood, and, like quick-thinking investors, they pounced and bought the property sight unseen.

They were apparently surprised to find out what they had actually purchased when they went to see the property for the first time. They were also concerned because they knew they were in for a battle with the wealthy homeowners. What do all good investors do when they foresee a legal battle? They spoke with an attorney.

It wasn’t until May of this year that the whole thing blew up. The Chronicle says the homeowners association was contacted by a title search company to see if the homeowners wanted to buy the street back. The Chronicle quoted one anonymous homeowner as saying: “I was shocked to learn this could happen, and am deeply troubled that anyone would choose to take advantage of the situation and buy our street and sidewalks.”

The situation has since gone from shock to legal fury. The homeowners association has now sued the couple. They are also blaming the city for not doing more to inform the homeowners association about the tax bill, especially when the auction notice was sent by registered mail, and bounced back to the city.

Don’t Forget to Pay Your Property Tax Bill

There’s certainly a lesson to be learned from this story. You might want to blame the city for failing to do a little more to contact the homeowner’s association. If a letter gets returned, it’s an obvious sign that you are sending it to the wrong place. On the other hand, it is the responsibility of the property owner or the homeowner’s association to make sure everyone has the correct address.

It would also seem that the homeowner’s association might have noticed that it was not getting a property tax bill for the street — for years. As the city tax collector’s spokeswoman, Amanda Fried, told the Chronicle: “Ninety-nine percent of property owners in San Francisco know what they need to do, and they pay their taxes on time.”

This is apparently not the first time the Presidio Terrace Association has had this problem. The Chronicle reports that the same homeowners association lost possession of the street in the 1970’s for failure to pay a state tax bill associated with the common areas. They managed to get it back, though, in 1985.

In the current case, Fried says there is nothing the city can do about the sale. The previous owners apparently have a one-year window to figure out a way to get their property back, and it’s now been two years since the San Jose investors bought it.

The investors are feeling good about their purchase. They said they don’t necessarily want to sell the property, but it’s not something that’s going to be easily put to use. One idea — they may charge for parking. The street has more than a hundred spaces and they could ask residents for a parking fee. If they don’t want to pay, some have said that maybe the neighbors will jump at the chance. That’s, of course, infuriating the residents who reportedly feel the threat is a pressure tactic to get them to offer a bundle of money to buy their street back.

Homeowners have asked the city for a hearing. That’s supposed to happen this fall.

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