Bait and Switch Lawsuit file to the big Home Auction Company – REDC
maria gudelis | June 26, 2008Wow – do you know those bid full page ads you see of this major real estate auction with teasers of seeing $400,000 homes with a ‘starting bid’ of only $120,000. That is a juicy deal so yes, crowds come rushing into the ‘event’ of the full day real estate auction being held in your area.
Well, guess one couple didn’t like the end-result of the deal they thought they won at auction…you can read the entire article about the filed lawsuit in the O.C. Register by clicking here. Below is an excerpt:
At an auction in Pomona in March, Juan and Laura Torres made the highest bid €” $146,000 €” for a Corona property, according to the suit. Ms. Torres believed she had opened escrow on the property after signing paperwork at the auction and agreed to pay a 5 percent “buyers premium,” bringing the total price to $153,300. However, 30 days later, she was told that “she would not be able to purchase the property unless she came up with $50,000 more money,” the suit says.
My husband and I attended an auction (not REDC) and won the bid, paid the 5% premium, bid accepted by seller. We worked on the financing and beginning the closing process. We got one extension on the closing date, but then had to switch mortgages due to the type of financing required for the repairs, which caused further paperwork delays. We had financing and were competely qualified, with a letter of explanation from our lender to both the auction house and seller. We where told by the auction house the seller would not extend closing again. Then auction house sent us a letter stating they were keeping our 5% premium, because we did not meet the closing date. Not even 3 weeks later we put an offer in directly with the seller-bank at a lower price and the seller accepted, but were confused, because they knew we were the winner bidder at auction and wanted verifcation of our approved financing. Come to find out the seller was told by the auction house we did not have financing and that is why we didn't make closing. We told the seller,auction house told us they(the seller) would not give further extension of closing and said we forfitied by not making the closing. Seller told us they would of had no objection to another extension if that option was presented to them, they want to get this house off their books. So auction house told each side a different story and washed their hands of us and keep monies from both sides (seller had to pay auction $3000, if house did not sell). In the end, we finally closed on the same house with that seller-after many months (5) of extensions due to the financing paperwork nightmare lenders are putting everyone through (CYA syndrom). It is obvious the seller was willing to give extensions repeatedly to get this house sold–contradiction to auction house and obvious we had secure financing, since we completed closing and are now making mortgage pymts–another contradiction to auction house. MY QUESTION>>>should we file a lawsuit against the auction house to recover our 5%premium, which we feel was held due to their shady practices? True, we did not meet closing as stated in their small print, which allows them to keep our 5%, but they lied to us and the seller about the reasons for not closing, which eventually happened–without the auction house's help. Any comments??
Twitter: mariagudelis
says:
Hey Marie – I’m not a lawyer and could get into trouble by giving legal advice…put an ad up on Craigslist for a attorney or paralegal in the real estate field in that state of jurisdiction and consult with him/her…I’ve found in the past…paralegals for a low as $25 an hour that have more knowledge than some lawyers! Good luck!
I went to Tranzon auction to bid the property. I asked them when inspecting the property if any reserve price. The agent said no. so i went to auction and won the bid, but 5 days later. i was told the bank rejected my offer. That is not offer, it is a bid. anyway It is just wast time, not go auction again.
Gene,
That's why they put it in the small font. It's hard to see, yet it counts.
Do they really have a case if the extra fee was in there somewhere in small font?
Twitter: http://hoggattlaw.com
says:
Sounds like a shifty deal. I would be filing a lawsuit as well. Can't let these kinds of people walk all over you.
Yes, It is definitely buyer beware. You don’t know what that property is like inside. People who have had their homes foreclosed upon are often very bitter and they may have done some very destructive things to the property. It is very important to be aware and understand what you are getting into. Read everything.
I was just now searching for about this when I discovered your post. I’m just stopping by to say that I very much liked reading this post, it’s really clear and well written. Are you thinking of writing more on this? It appears like there’s more material here for future posts.
AUCTIONS ARE FOR SUCKERS – DON’T ATTEND THEM!
Another\ auction coming to Southern California and the advertisements, (costing tens of thousands of dollars) abound on TV and in the Newspapers. Many of these homes are the loser properties, the ones they could not sell to folks for a multitude of reasons, many of them hidden reasons that you, the Buyer, will not find out about until after you have given the Auction house your nonrefundable earnest money! Many of them are even “Teardowns” (structures so messed up it is cheaper to tear them down than to try to repair all their defects), and many others have been “red-tagged” (illegal to inhabit) by the local Building Departments.
You cannot win, so do not even bother to play. Ignore their hype and read the “Terms and Conditions”.
In the interest of public education here are a few facts:
All Properties have a Reserve Price, meaning the Seller of each Property has established an unpublished, minimum selling price. The starting bid is not the Reserve Price.
My comment: Why attend an auction where you don’t know the minimum price? Reserve auctions are OK, assuming the reserve is disclosed. Absolute (i.e. no reserve) auctions are best. With an unpublished reserve, you are shooting in the dark.
the Auctioneer may open bidding on any Property by placing a bid on behalf of the Seller and may further bid on behalf of the Seller, up to the amount of the Reserve Price, by placing successive or consecutive bids for a Property, or by placing bids in response to other bidders. Yes, you may think you are bidding against other legitimate buyers when in fact, some, or even all, of the other bidders in the audience are actually SHILLS! Yes! They are employees of the Auction House who are pretending to be Buyers so as generate excitement and to run up the price of the property to regular, and often even above, Market Value.
My comment: The auction house bids against you? So not only are you up against other bidders, but you are bidding against an auction house, up to a price you don’t know.
“Winning Bidder’s purchase is subject to, and contingent upon, the REO management of Seller approving the purchase, which shall be given or denied at their sole and absolute discretion within fifteen (15) business days”
My comment:
So even if you manage to outbid everyone else, and the auction house, the bank has 2 weeks to reject your offer.
At some of these phony auctions you even have to pay the commission, rather than the seller paying it, up to 5%.
Remember: The Auctioneer is not acting as an agent for any Bidder in any capacity, and is acting exclusively as the Seller’s agent.
At US Home Auctions they state that “The total purchase price will include a buyer’s premium equal to five percent (5%) of the winning bid amount”
“The buyer’s premium is the fee the Auctioneer charges the bidders to bring the Property”
My comment:
5% is a steep fee to pay as a buyer. Normally a the seller takes the hit for the 6% agent commission.
Folks, there is no way you’ll get a bargain here. Hold out for absolute auctions. There is a tidal wave of foreclosures about to hit the market, and you’ll get a much better deal.
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In case you still have no common sense and still plan to attend an “Auction” –Ok.. so you found a property you want to bid on, you did your home inspection, well scratch that, you went and take a look at the property, It’s not going to be anything close to a home inspection, none the less you like the property, you did all the pre-auction prep work etc. and came up with a max price and want to take a shot at bidding on it. Now what, well.. make sure your prep work included READING the CONTRACT carefully and understand that it’s 100% ONE SIDED in favor of the seller. In the event you’re the unlucky one to win the bid, yes that’s right, I did say UNLUCKY, because the nightmare may just be starting. ….READ THE CONTRACT..READ THE CONTRACT….and other docs you’ll have to sign..all of the over 100+ pages.
Twitter: mariagudelis
says:
Hey there, thanks for the comment and you are absolutely right – that is why a few days ago I blogged about the ‘tide is turning’ after listening to Bruce Norris and how his team is finally getting good deals at the auctions like REDC. That post is at http://www.maria-gudelis.com/maria-gudelis-real-estate-guide/news-on-california-real-estate-and-real-estate-auctions-113.html
Read the story closely the buyers didn’t even buy from REDC they bought from another auction firm and now are using a broad brush to file this suit. Peaple are getting great deals at these auctions …you can bitch and moan but I’ve seen it !