Lockport Union-Sun & Journal Online

January 30, 2013

City will pay back spurned bidder

By Joyce M. Miles
Lockport Union-Sun & Journal

Lockport Union-Sun & Journal — The Common Council will be asked to amend the terms of sale of tax-foreclosed property after complaints by winning bidders in the 2012 auction who forfeited their down payments.

One bidder filed a lawsuit against the city earlier this month, seeking the return of $6,150 in down payments he made on two properties that the treasurer’s office later ruled he could not purchase, because at the time of the auction he owed city and school tax on another property in the city.

The treasurer’s office kept Daryl Ubiles’ deposits and also sold the properties to their next-highest bidders, per rules and conditions posted ahead of the city’s Oct. 23 tax foreclosure auction.

Ubiles, who owns at least four properties in the city, claimed in his suit that he did not know he was delinquent on property taxes for 422 Clinton St., a vacant lot, because he never got 2012 tax bills from the city or the school district.

Even though he paid the past due amount, $399, on Oct. 29, the very day he says he was informed of it, the treasurer’s office refused to complete the transfer of the properties, 37 Center St. and 185 N. Transit St., to him, according to the suit.

Ubiles petitioned for a court order directing the city to either let him finish buying the properties or give his money back.

Since the properties were already sold to others, the city will return a portion of Ubiles’ payments, City Attorney John Ottaviano said Tuesday. The exact portion remains to be hashed out by him and Ubiles’ attorney, he added.

In light of numerous complaints, Ottaviano said he will advise the Common Council to order a change in the city’s written terms of sale for property auction, so that winning bidders have up to 30 days after an auction to pay off past-due taxes on any property they own in the city.

Presently the treasurer can refuse to transfer auctioned property when the bidder is found to be tax-delinquent as of the day of the auction, has lost property to city tax foreclosure since 1990 or owns any property that, as of auction day, has outstanding housing violations.

Literally in capital letters, right above the space where a bidder has to print his name and sign his agreement to all the terms, the sale contract warns bidders that “upon such findings of delinquency, all monies deposited shall be retained by the City of Lockport as liquidated damages.”

Still, the city has fielded complaints from at least a half-dozen bidders in the 2012 auction to whom the treasurer’s office later refused to sell property, because the bidders were found to have violated a term of sale, according to Ottaviano. The would-be buyers lost between $5,000 and $6,000 apiece, the sum of a 20 percent down payment on an auction purchase and a 10 percent buyer’s premium for the auctioneer.

Treasurer Michael White defended his office’s practice of keeping bidders’ deposits when sales fall through, saying the city faces unexpected expenses as a result. When the second-highest bidder at auction declines to buy, or is disqualified, the city is left with real property to maintain and the extra cost of trying to sell it again.

In addition to the delinquency disqualifiers being put to bidders in writing, every year the auctioneer repeats them numerous times during the live auction.

White says as far as he’s concerned, rules are rules, and they should be enforced “uniformly” and as a matter of principle.

Delinquency provisions were developed to discourage purchases by tax scofflaws, flippers and milkers, that is, the sorts of people who buy up property to wring income out of it on as little investment as they can get away with.

“We have rules and they seem to be working,” White said. “Over the years this is how we’ve been able to improve the caliber of people who attend the auction.”

Regarding tax delinquents, White added, every year in the days leading up to the city auction, treasury staff take late payments from “lots” of people who end up being registered bidders. This tells him the rule is “most definitely well known” by locals.

Regardless how clear the language is in the terms of sale, Ottaviano said that in talks with an attorney for one of the rejected 2012 bidders, issues of fairness were raised that he thinks the city might have a hard time defending in litigation.

The treasurer’s office says it is keeping down payments to recover losses due to canceled sales, but it doesn’t approximate what a canceled sale actually costs the city. It’s just keeping 20 percent of the bid price.

“It would be fair to hold back a portion (of deposit) to cover fixed costs that the city incurs, but is it fair to take $500 from one bidder and $2,500 from another?” Ottaviano said. “We’ve always had complaints (about forfeited auction purchases), for as long as I can remember, but this year we’ve had significantly more — and more aggressive — complaints.”

Specific to Ubiles’ complaint, an equity issue is in play, according to deputy corporation counsel Michael Norris.

Ubiles owed $400 in taxes and late fees, and although he paid the tab in full less than one week after the auction, the city could be seen as having turned a tidy profit from his mistake. Four hundred owed, $6,000 taken, might put a quizzical crinkle in a judge’s brow, the attorney suggested.