So many home searchers think auctions are the place to buy in this current market, I advise them to skip them, very few deals there and fewer safeguards for the buyer!
A Corona couple that tried unsuccessfully to purchase a home at an auction of lender-owned properties has filed a lawsuit against several auction companies, including Irvine’s Real Estate Disposition Corp., accusing them of a “bait and switch scheme.”
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.
The suit was first reported by Inman News, where a copy of the lawsuit can be downloaded.
The suit, filed last week in Los Angeles County Superior Court by the Huntington Beach firm Spainhour Law Group, seeks class-action status on behalf of “all persons or entities who attended a live auction … held by one or more of the defendants.”
The suit appears to hinge on whether the auction companies are responsible for the plaintiffs’ perception that properties would be sold to the highest bidder, as opposed to “subject to confirmation” by the lender that owns a property. Lenders typically set a “reserve price” for each property they offer at these auctions, and if the bidding doesn’t rise to the reserve price, they are not obliged to sell under the auction rules.
Most people who attend the auctions think that if they make the highest bid, they can buy the property, said Shawn Olson, a lawyer with Spainhour. “That’s how they’re advertised,” he said. Instead, the highest bid “becomes the basis for an offer to the purchase property. That’s not right,” he said.
“If they advertised (that) the auction really is a solicitation of offers, their auction process wouldn’t work,” Olson said.
The auction that the Torreses attended was organized by CataList Homes Inc., which is one of the defendants in the suit, Olson said.
In a statement to Inman News, Michael Davin, president of CataList, defended the firm’s auction process, saying “the reserve auction method is an effective and fully legal sales process utilized for hundreds of years in the sale of many types of assets.”
A third plaintiff in the suit is Peter Terraciano, a Lancaster real estate broker who attended an auction held by REDC in April, Olson said.
Rob Friedman, chairman of REDC, said that if the highest bid for a property is below the reserve price, his auctioneers make it clear that the sale is “subject to confirmation.”
“We don’t try to hide it — we announce it and we have it on paperwork when they sign. We try to cover all bases so we are not hiding anything from anybody,” Friedman said. “And we have hundreds of very, very happy clients and people who are buying properties at what we consider to be wholesale prices.”
Other defendants in the suit include Countrywide Home Loans Inc., GMAC Mortgage LLC, and Dovebid Inc.
Call me, I'll get you a better deal than available at any auction!
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