In 2004, Johnny Ribeiro, a seasoned real estate investor, thought he had found a sweet deal: a plot of commercial property being sold at a tax sale by the County of El Dorado, California, for $834,000, which was appraised for substantially more. Available documentation showed approximately $560,000 in delinquent taxes and indicated there was a lien against the property for special assessments authorized under the Improvement Bond Act of 1915 (California Streets and Highways Code Section 8500, et seq.). Mr. Ribeiro understood there were delinquent special assessments encumbering the property, but did not know the amount of those delinquencies. The auctioneer warned that the sale was subject to the principle of caveat emptor – “buyer beware.” Unable to confirm the amount of delinquent special assessments, Mr. Ribeiro assumed such delinquencies must equal the difference between the required opening bid and the amount of delinquent property taxes – approximately $250,000 – and so submitted his winning bid and paid the 10% deposit of $83,400.
Several weeks later, Mr. Ribeiro received a document from the County Auditor-Controller showing delinquent special assessments securing outstanding bonds in the amount of $2.7 million, rendering the property, as he would later state in his lawsuit, “economically unviable.” Mr. Ribeiro canceled his purchase and sued the County for the return of his deposit. The trial court ruled in Mr. Ribeiro’s favor, but the California Court of Appeal, Third District, reversed that decision, upholding previous California Supreme Court precedent that “there is no relief for a buyer at a tax sale who has made an unwise bid based on incomplete or incorrect information.”
Ribeiro could not invoke statutory remedies because the tax sale was not fraudulent or improper. Ribeiro then sought the equitable remedy of rescission due to mistake. The court, however, concluded that caveat emptor “precluded a dissatisfied buyer at a tax sale from recovering, except as explicitly allowed by statute.”
The lesson: A buyer at a tax sale must do its lien homework, and that includes checking all sources, including the county, the issuer of bonds, tax bills and title reports.