Supervisor Hillary Ronen voted against reversing the sale, saying homeowners had defaulted before and should have been on notice.
She agreed that most people did not expect to pay taxes on the sidewalk in front of their house but pointed out that most people don't have a private street in front of their house.
"Did the treasurer act unreasonably? I don't think so, and should we give a second bite of the apple to these homeowners when most people don't get that?" she said. "I don't think so."
The issue is unprecedented in San Francisco, although supervisors in other California counties have reversed sales as allowed under state law.
The oval-shaped street in upscale Presidio Heights is lined with leafy palms, lush landscaping and multimillion-dollar mansions.
Previous residents of the gated neighborhood include U.S. Rep. Nancy Pelosi and U.S. Sen. Dianne Feinstein, who wrote a letter that accused the city of bureaucratic bungling.
Current residents lined up Tuesday to plead their case, saying they were regular, hard-working San Franciscans who had faithfully paid taxes on their homes and simply didn't know about the separate tax lot. The British consul general in San Francisco lives in the neighborhood.
The residents cheered when the vote was announced.
Investor Tina Lam had bought the street, its sidewalks and common areas for a mere $90,000 at an auction in 2015 after the Presidio Terrace Association failed to pay property taxes on it for two decades. The annual tax bills of $14 and auction notice were sent to an outdated address that the association failed to update.
Homeowners learned about the sale earlier this year and petitioned the board for a hearing.
City Treasurer Jose Cisneros said he followed the rules and that there was no indication that the property, listed as a vacant lot, was attached to residences. Otherwise, he said, his office would have reached out to homeowners.
It marks the second time the association has defaulted, but it won back the street in 1985 after paying up.
Shepard Kopp, attorney for the buyer, said in a statement he was disappointed in the supervisors who sided with the association.
"Sadly, the seven members of the Board who voted to rescind this sale have demonstrated that you get a different standard of government in San Francisco if you are rich and politically connected," he wrote in a statement.