Developer foreclosures create bargains

The recession that has pushed a few developers and builders into dire financial straits has created bargains from their wreckage.

Last year there were hundreds of vacant lots in several new subdivisions that were sold at a discount because the developer just couldn't afford to keep them.

This year, scores of unsold lots in two subdivisions, Castle Estates in Bentley and Sawmill Creek near Bel Aire, are scheduled for tax foreclosure sale, along with all the other homes and parcels.

The first sale is set for late June or early July. Three more will be held before Oct. 1, said Sedgwick County Treasurer Ron Estes.

The owner of the lots could pay off the outstanding tax bills at any time and remove them from the sale.

Bentley Mayor Shelley Armstrong said she hopes a sale will be the end of her town's nightmare.

Five years ago, Bentley extended streets and utilities — costing more than $1 million — to two subdivisions only to have the developer stop paying taxes and specials when the lots stopped selling. The town has had to raise taxes and cut its budget to stay solvent.

"What would be ideal is if a developer or builder would buy all of the lots," she said. "They would definitely be a good investment."

She is trying to come up with incentives and a marketing plan to attract builders to buy the lots.

Unfortunately, builder interest in new land is pretty limited right now because of the recession.

Clint Miller of Clint Miller Homes said he has plenty of land already in his three subdivisions and doesn't plan to buy more. His pace of construction is about half of what it was in 2008.

But auctioneers say the lots in vacant subdivisions always sell.

"They go to speculators," said Bud Palmer of Bud Palmer Auctioneers, who typically runs the county's tax auctions.

The buyers are individuals who buy the lots and sit on them until demand perks back up, he said.

Buyers are only liable for taxes and specials going forward, not the unpaid liabilities of the previous owners, Estes said. The purchase price goes toward any outstanding bills. If there are unpaid bills remaining after the sale, the governments dismiss them.

McCurdy Auction sold about 100 vacant subdivision lots last year because the developer ran into cash problems or simply didn't want to keep paying the taxes.

The buyers tend to be speculators looking for a bargain or neighbors seeking the lot next door as a playground — or both, said associate broker Braden McCurdy.

The lots are a better investment than much of the land sold at auction because they are part of an approved subdivision and almost certainly will sell later at a price comparable to the other lots.

"I've made a lot of money buying land," Palmer said. "I've bought lots for $10 and sold them for $10,000."

The key questions are how big the discount is and how long the owner has to hold it, Palmer said. That's where the financial risk comes in.

"They'll be worth a lot some day," he said. "But someday could be 25 years from now."