How to get cheap cottage land

What you need to know about bargain hunting at tax sales

By Diane ForrestDiane Forrest

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It’s an unreliable Monday afternoon on Georgian Bay, way past summer, and the cops are cruising the 400. So why have four people taken the day off work to come to an uninspiring, fluorescent-lit office in Port Severn?

Two words: tax sales. The dream of owning a cottage property you couldn’t normally afford. (Or, in some cases, buying one cheap and selling it to someone who can afford it.)

Here’s how it works:

Remember that big property tax bill you get once a year? Some cottagers just don’t pay that bill. Some people don’t pay it for years and years. Maybe because they don’t have the money. Maybe because it’s not exactly clear to whom the property belongs. Maybe because they’ve moved to Melbourne and forgotten all about it. In any case, eventually the municipality gets tired of waiting for its money. Once three years have passed with no payment, it can register the property as being in tax arrears. It then has 60 days to do a title search and contact anyone connected with that property. The laggards have a year to pay up—though sometimes the municipality will agree to set up a longer payment program. “We don’t want to take people’s property,” says Bonnie Munro, treasurer of the Township of Georgian Bay. Tax sales are time-consuming and may not get the results desired, she points out. “We just want to get the taxes. So we really try to work with people.”

But Island 65 in Georgian Bay, Township of Tay, County of Simcoe, was bought for $40 in 1912, and it looks like the owners have long since lost interest. So today Munro is selling it off.

The sale was listed in the August 30, 2003 edition of the Ontario Gazette—a publication listing government notices and regulations—and local newspapers. So far, the tax owing and the expenses of the case come to $37,358.48, so that is the Minimum Tender Amount—the lowest bid allowable. Bidders must submit offers ahead of time, plus a money order, bank draft, or certified cheque for 20 per cent of their bid. They can either come to the reading of the bids or wait to be informed.

There are seven bids altogether, but as Munro prepares to read them out, there are only four people at the table – just enough for suspense. At 3.6 acres, Island 65 is low and scrubby — “It lacks those Group-of-Sevenesque features,” as one bidder says. But the market is hot these days and Port Severn is about as close to Toronto as cottage country gets. Others put the market value of Island 65 at around $78,000. A similar island nearby was recently assessed at $100,000, and the island next door is listed for sale at $249,000 – an arrogant sum, given that it, like the other two islands, is zoned open-space, not for building. Whoever purchases No. 65 will pay $500 for a rezoning application and wait up to a year for its approval – if it gets the go-ahead at all.

Munro opens the bids, checking with tax collector Patricia Potter that the deposit cheques satisfy the 20-per-cent requirement. The first three tenders are from absent bidders: $54,100, followed by $41,501, then $70,100. And that’s the end of the story for the four men present. Their bids fall short at $70,007, $43,000, $56,002, and $60,100. (Instead of tendering an even amount, some bidders tack on a few extra dollars; anything to give them an edge.) In 10 minutes, it’s all over. In half an hour, they’ve got their deposits back and are heading for their cars.

Only the highest two bids are kept on file. If number one falls through, number two gets his or her chance. And if that doesn’t work, the municipality can then sell the property or find some use for it. Even if the winning bid does work out, the municipality doesn’t necessarily get the $32,741.52 remaining after it collects the tax owed. That money goes to the public trustee and the previous owner has up to a year to claim it, before it reverts—maybe—to the municipality. “It’s not a profit thing for us,” says Munro.

Buying through tax sales = homework

It all looks quite simple. But even if all you want is a little lot on which to build your dream cottage, buying through tax sales consists of homework, homework, and more homework.

That’s the conclusion of Bernie Hildebrandt, one of the disappointed bidders for Island 65. Hildebrandt got wise to tax sales when he started thinking about buying a family cottage or rural retreat. Back then, he wasn’t sure where he wanted to locate. Now, a few sales later, he’s decided on the Beaver Valley. But in the meantime, he’s happy to bid on anything, including waterfront property, to leverage up to his ultimate goal. And in the meantime, who knows? He might change his mind.

Hildebrandt is in serious danger of becoming a tax sale hobbyist, joining the small band of regulars who show up wherever bids are opened, comparing notes and lamenting the ones that got away. Kevin Walters, for example, has been buying properties through tax sales for more than 10 years and now owns dozens, most of them in cottage country. No wannabe cottager (he already has two retreats, on Georgian Bay and Lake Erie), Walters is hooked on the “thrill of the chase” and the investment possibilities. Finding the right properties and figuring out what to bid is time-consuming, but also fun, he says. “With a reasonable amount of caution, you’ll never lose.” All you need is an understanding of the rules and a lot of persistence.

“The biggest challenge is just getting the information that there’s a sale,” says Hildebrandt. The Ontario Gazette, full of notifications of legal actions and changes of legislation, is not light reading. The ad should also appear in local papers, and there are companies that put out newsletters listing all the sales. Usually, there’s about a five-week gap between the first ad and the sale.

Find out about the property

Once you’ve spotted the sale, the next step is to call or e-mail the municipality and order the information package. And while you’re on the line, see if there’s anything else the office staff can tell you about the property—the taxes, the zoning, what it looks like.

Once he has the information package, Darren Gingras contacts a lawyer to do a title search. While the municipality undertakes this as part of its investigation, “the responsibility for making sure the title is clear rests with the purchaser,” warns Gingras, an investment coordinator with Property Possibilities, a tax sale company. “Obviously, the previous owners got into these extreme situations, so you want to make sure there’s not something lurking back there waiting to bite you”—such as right-of-ways, outstanding debt, toxic waste, an unknown heir, or a divorced spouse ready to pounce.

“A municipal title search might not be extensive enough to bring up everything, whereas a lawyer who’s paid to do it will be more thorough.”

Kevin Walters prefers to do his own research, sometimes by going to the county land title or registry offices. “It could take an afternoon, depending how busy and helpful the staff is. Most of the time, as long as you don’t pick the last Friday of the month, when they’re tied up registering property closings, the staff is quite helpful.” You may also garner useful information, such as the property’s assessed value, by looking it up on the municipal assessment rolls.

Fred Roisin of Canadian Land, which provides a tax sale newsletter by the same name, warns prospective bidders to check for access issues and municipal restrictions. “And if there’s an existing building on the property, you want to be aware of its condition,” he advises. “But if the lot is going for only $5,000, you can’t go wrong.” Walters, however, thinks it’s wise just to stay away from such properties, pointing out that “if people haven’t paid their taxes, they may not have paid a lot of other bills. Often buildings have been unoccupied for the past decade and either they’re beyond repair or they need a lot of work.”

This article was originally published on April 16, 2005


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Diane Forrest