But rather than contracting with the owner of the units -- Miami Beach-based Sarasota Palms LLC -- the three investors bought the residences at a tax deed sale at the Sarasota County Courthouse.
Sarasota Palms LLC, which bought the 248-unit complex in 2004 in order to convert the apartments to condos, did not pay its 2005 property taxes on 55 unsold units. So the county foreclosed on the units two years ago and put the first five up for sale at auction on July 24.
The result was that Michael Averbuch was able to buy a one-bedroom unit for $26,000. Mark McLaughlin bought two units for $59,000 and Michael Beasley bought two more for $80,000.
Given that units sold for an average price of $140,812 during the past four years and the most recent sale at Sarasota Palms came in at $106,000, the three investors are almost certain to profit from their investments.
"Typically, these properties do not sell at tax deed sales because the bank pays off the liens," said Bill Travers, a Sarasota real estate agent. "Banks don't want the government to seize a property and sell it off."
In Manatee County, for example, only five of the 257 properties that were put up for sale at auction at the county courthouse in 2008 were actually sold to outside buyers.
"Ninety-five percent of the time, properties get redeemed because no one wants to lose them for a few thousand dollars in unpaid taxes," said Michael Williams, president of Rogue Investors, a Kansas City, Mo.-based company that specializes in buying properties at tax deed sales. "But sometimes things will slip through the cracks."
So what happened this time?
Gordon Serbus, who owns a unit at Sarasota Palms and also sits on the condo association board, said an attorney representing the developers failed to follow up on the tax issue. But the developers, led by Miami condominium consultant Bernard Meyer, and bankers at Englewood-based Peninsula Bank also played a role.
Meyer did not return calls. But since the loss of the five units, his firm has been paying back taxes on the remaining unsold units.
Ricardo Solano, Peninsula's president, sent an e-mail to the Herald-Tribune, saying that the loss of the five units would not affect the bank's collateral on its $3.9 million loan to Sarasota Palms.
"At bottom, our collateral position will remain essentially unchanged," Solano wrote.
He added that Sarasota Palms sold 14 units and reduced its loan by a considerable sum in 2007, and he expected a few more sales in 2008.
"In the interim, rental income will assist in confronting the project's debt service," Solano said. "It is anticipated that through the borrower's efforts and the bank's continued cooperation, the project will come to a favorable conclusion."
A successful conversion
Sarasota Palms LLC, which is made up of Meyer and three fellow Southwest Florida investors -- Raul Benitez and Henry and Kimberly Rodstein, bought the 248-unit Sarasota Palms apartment complex for $12.25 million in June 2004.
The investment team obtained a $19.3 million loan from Merrill Lynch Capital and used the excess money to fix up the property.
By February 2005, the converters had sold their first property. They then proceeded to sell 196 more over the next three years, netting a total of $27.7 million in sales.
That would be considered a tremendous success by any measure. The only problem is that the condo converters never paid taxes on their unsold units.
In early July, they still owned 55 units and owed $3.9 million to Peninsula, which took over as the principal lender for the project in September 2005.
Peninsula is among a handful of local banks that have been plagued by problem loans. As of March 31, the bank had $38.7 million in noncurrent loans on its book -- 9 percent of its total loan portfolio.
Sarasota Palms LLC's total unpaid taxes amounted to $90,400 in early July, or an average of $1,640 per unsold unit, county tax records show.
The county foreclosed on the units in June 2006 and waited the customary two-year period before allowing them to be put up for sale at auction.
Averbuch, McLaughlin and Beasley just happened to be in the right place at the right time.
"I played around with the stuff in Orlando," said McLaughlin, a real estate investor who bought two of the units at Sarasota Palms. "I just happened to be at the courthouse and people were checking out tax deed sales. I found out about it that way."
When a property owner fails to pay property taxes by June 1, the county deems the taxpayer delinquent, said Debbie Coulter, a tax deed sale specialist with the Sarasota County Tax Collector's Office. The county then sells the right to collect those taxes to investors, who bid against each other for interest payments associated with the unpaid debt.
Bidding begins at an 18 percent interest rate and is bid down until the tax certificate is sold to the lowest bidder. In Sarasota County, the average interest rate bid by tax certificate investors in 2008 was 12.3 percent, while the average was 11.6 percent in Manatee.
If the taxpayer has not paid his or her taxes within two years, the property can be sold at auction.
"Clerks send notice via certified mail to anyone who has an interest in the property and advertises the sale in local newspapers for three consecutive weeks," Coulter said.
That gives property owners and their creditors plenty of warning before properties are auctioned off. If no one bids on the property, the deed is transferred to the person or entity that bought the tax certificate two years earlier.
"If the owner or its bank wants to maintain rights to the property, they have to come up with money to pay off the taxes or they will lose their equity in the property," said Williams of Rogue Investors. "Sometimes banks, for whatever reason, lose out."
Once the tax deed sale is over, the new owner of the property is required to pay off all government-related liens, said Rod Rawlings, a Sarasota real estate agent with Re/Max Alliance. But all commercial liens, such as bank debt, are extinguished.
"IRS liens are not vacated with a tax deed sale, and there can be other problems with the title," Rawlings said. "There may be a former spouse who has not been paid."
Tax deed sales do not happen very often. But when they do, they can be a good deal for buyers, Rawlings said.
"There is still an element of risk," he said. "But a lot of people track them to see whether they can get a steal."