Bidders buy San Jose condos at low prices, but was auction legitimate?

Buyers nabbed nine new condominiums at a foreclosure auction in Downtown San Jose for between $31,500 to $32,300. The problem: The sale may have broken a court order.

The homeowners association for a residential tower at 188 West St. James Street hosted an auction of 10 vacant condos Tuesday in order to collect HOA maintenance fees, which hadn’t been paid by building developer Z&L Properties, the San Jose Mercury News reported.

But six days before the April 8 auction outside the Santa Clara County Courthouse, Superior Court Judge Helen Williams issued a temporary restraining order to delay any auction or foreclosure.

Late last year, the Foster City-based developer owned by disgraced Chinese developer Zhang Li  faced foreclosure for failing to pay homeowner association dues for 190 unsold units at the twin tower complex.

The towers contain 320 condominiums each, with the delinquencies in the western highrise. The eastern tower is vacant.

A Z&L Properties affiliate that owns the unsold condominiums in the west tower had in December owed unpaid assessments of more than $1.3 million, and headed toward default.

The 188 West St. James Owners Association had filed delinquent liens, warning it might force a “private sale” of the condos to satisfy the unpaid dues and other expenses.

But the private sale, which unloaded nine of 10 condos at fire sale prices, had been temporarily blocked according to the judge’s order. 

The restraining order resulted from a lawsuit filed by Nixon Peabody, a law firm representing Z&L Properties. Z&L’s lawsuit was directed at some HOA members for alleged improper attempts to auction off the condos.

Just as the sales were about to get underway, Morgan Cahill-Marsland, a real estate attorney with Nixon Peabody, presented the trustee’s representative conducting the auction with a copy of the judge’s order.

Moments before the auction for the 10 condos began, Cahill-Marsland warned attendees — and prospective buyers — that the auction was being conducted in violation of the court-imposed restraining order.

Nationwide Reconveyance, the trustee handling the proceeding on behalf of the HOA, held the auction anyway. An on-scene representative of the San Diego-based firm declined to identify himself to the Mercury News.

Winning bids ranged from $31,500 to $32,300, after prospective buyers agreed among themselves not to bid against one another. One buyer bought three condos; two buyers each bought two condos; and two buyers bought one unit each. The HOA wound up owning one unit that attracted no outside buyers. The buyers all declined to be identified.

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Maria Kao, an attorney with Briscoe Ivester & Bazel, a law firm representing the HOA for the two towers, was at the auction, but declined to comment. 

Z&L still has 90 days to regain ownership of the just-sold units — if the developer pays the delinquent dues, late fees and penalties for each condo. It’s not clear what action the judge may take for the violation of her restraining order.

The building owner has been selling units in the western tower for between $500,000 to more than $1 million, according to county documents cited by the Mercury News.

— Dana Bartholomew