Foreclosure auction ads are deceptive, suit alleges

A lawsuit to watch, from Inman News: "A lawsuit filed in California Superior Court challenges real estate auction practices, charging that some auction companies engage in deceptive advertising and violate provisions of federal law related to real estate closing services."

More: "'Many modern real estate auctions are nothing more than a bait-and-switch scheme to lure hopeful buyers to submit offers that can later be accepted or rejected by the lenders/sellers, despite the general public's perception that once the auctioneer declares, 'Sold,' the property is in fact sold,' the lawsuit charges. ... Filed June 12 on behalf of three individuals who attended a real estate auction event in Southern California -- including one individual who is a RE/MAX real estate broker -- the lawsuit also charges that auction companies 'direct and require the use of their settlement service providers and shift the cost of sales, including commissions, from the lenders/sellers to the consumers' in auction event signing rooms."

The lawyer who filed the suit, Shawn M. Olson of Spainhour Law Group, told L.A. Land that one of the plaintiffs, Laura Torres, was the winning bidder on a Corona house, bidding $153,000 for a home listed with a minimum bid of $95,000.  "So she signs all the contracts, opens escrow, gets an appraisal, gets inspections, and 29 days later, when she thinks escrow is going to close the following day, on the 30th day, Countrywide calls and says they need $50,000 more -- on a $153,000 home," Olson said.

The lawsuit names as defendants Countrywide Home Loans Inc., GMAC Mortgage LLC, Real Estate Disposition Corp. and DoveBid Inc., which partners with the brokerage company CataList Homes. Inman quotes CataList president Michael Davin saying, "I can't comment specifically on the case as I haven't read the documents. However, we will stand firm and defend our auction practices as 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."

Inman further reports that GMAC had no immediate comment and that representatives for REDC and Countrywide could not immediately be reached for comment.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.

Comments

[dclogang]

I think houses in foreclosure in California should not goto auction at all.

Instead I think foreclosed houses should be priced by a governing body according to the median income in that area, the size of the house, the neighborhood and according to the average rate of increase of value starting back at least 10 or 15 years ago. Basically draw a straight line as the houses appreciate.

Then those who have bad credit or who have been forclosed on should not be allowed to by these houses. In addition to Flippers. Meaning that if you buy one of these houses you HAVE to live in it for at least 2 or 3 years. It cannot be purchased as an "investment" (that's partly what got us where we are today).
That way the house prices are brought down to reasonable prices and those who were patient and have good credit scores etc have a fair shot at buying a house.

I heard they are fining people in another state who try to flip houses for profit and I think it's not only terrific but needed.

My 2 cents.. oh wait, we are in california so It's 5 cents..

[keith]

Saw this coming a while ago. The "auction" was just a marketing tool, knew these fools would step in it pretty quickly.

[Cal]

There was one house I was interested in, I downloaded all the docs and read them. They basically say that they have a contract with you but you have no contract with them. They also clearly state that shill bidding can be used. When are people going to learn that screwing people is not a sustainable business strategy? They really need to make the process more transparent. They have your earnest money at that point so they are really holding all the cards. I hope the lawsuit is successful just so it brings a needed change to auction process. But their liability only seems to be money spent by buyers on deals that didn't close.

[Hank Venture]

Go directly to Jail. Do not pass go. Do not collect $200.

[Uncle Billy Auctions Mont Pelerin]

Did Bob from the post on the Gardena auction ever get a hold of the blog? I think there was another scammed buyer out there as well in the comments.

Well, Catalist, run by Grubb and Ellis types , was not expected to be a, ehem, class act. So they partnered with Countrywide, who we have seen is definitely not a class act (at least the fish was rotten from the head), and they partnered as well with REDC, who from this post seems to be the same folks that were conning widows and orphans out of their properties under the name NRLL:

http://tinyurl.com/5h24np

But these guys are like fleas on Dovebid's bottom. The "global ceo" is English. Hmm... we're seeing more and more english involvement in our real estate woes... remember Barclay's and the Santa Clarita Landsource /Calpers / Lennar /Mysterious Hedge Fund B/k? Anywho, he comes from GE.

CEO of North America came from GE Capital. Trend? GE?

Executive Chairman Dove: "Dove was chief auctioneer at both the FDIC's and the RTC's largest auctions"

Ok, so now that we see which big boys showed up to help us release our pent up foreclosure pressure, who will be buying our homes in massive lots? That's what these guys are good at... selling in massive lots.

Hey! Come to think of it, DoveBid would be a great new career for Laura Richardson, the fast talker that she is -- she'd make a great auctioneer.

[Michael Snyder]

dclogang,
So, you've been doing real estate in Havana? Who would be on this "people's pricing committee"; you, Laura Richardson and what other experts??
Real estate prices are set by location, market conditions and the cost of money. Even with the bubbles it's a system that's worked well for over 200 years and I for one am inclined to allow nature to take its' course.
Real estate auctions in California are the only auctions I've ever heard of where the deal changes after the gavel has struck.
I make the livestock auction in Madras when I'm home and I can assure you the seller knows if their reserve price is met, the deal's done at whatever price the gavel falls. I attend antique and art auctions here in So. Cal. and the same rules apply. So where does Countrywide get off trashing an honorable system that's worked well for centuries? Oh yea, it's Countrywide. I guess you don't have to follow the rules if you own the rule makers.

[ChrisFS]

"Real estate prices are set by location, market conditions and the cost of money. Even with the bubbles it's a system that's worked well for over 200 years and I for one am inclined to allow nature to take its' course."

This is typical free market yahoo clap trap.
The concept of 'nature taking it's course' is ridiculous. it was the lack of regulations (and enforcement of existing regs), that has caused the huge mortgage/ real estate mess we are in now. In Sacramento, CA, 66% of all house sales were foreclosures. Lenders were loaning money with no regard to ability to pay, and happily falsifying documents in order to get deals done. Not just one or two bad loans, a huge amount of loans with income nowhere close to what was stated and inflated house prices by appraisers who are on the take as well.
This is a system that "has worked well for 200 years"????

Even excluding the present disaster, worked well for whom? Homes have become out of reach for whole groups of people who are needed to make a metropolitan area work. Office workers, even teachers,and nurses in some areas, have very little if any chance of ever owning their own house within any reasonable commute of their work. There were booming communities way out in Tracy and Brentwood 60 miles away because there is no affordable homes nearer. Even these houses could only be gained by insane neg am loans that reset to obvious effects.

[dontmatta]

dclogang, the reason for this whole mess isn't because of flippers. The solution is most certainly not a government entity dictating what the prices should set at either.

Going back to the issue at hand, the problem with these auctions is that there has to be some type of regulation and laws against unethical practices, and corporations not honoring their end of the deal.

[GDC]

What the hell is wrong with this bank? This is yet another reflection of the way Mozilo ran the place. Asking for $50k more after the winning bid and escrow? Outrageous. Now there is evidence of payolas to top government officials? Mozilo belongs in prison. EVERYONE should stop banking with these losers RIGHT NOW.

[EEF]

Finally!

[Housing Bull Chorus]

Quit your bitching you pathetic renters.

You're gonna pay top dollar if you want a bona-fide Bank-owned foreclosure whether you like it or not! Most of our homes already have the decorative bars on the windows and the fences just scream out ..."GENTRIFICATION HAS ARRIVED!"

Stop worrying about the fact that we won't let you inside the homes until after you purchased them. It's not like the former homeowner poured quik-crete down all the drains and toilets, gutted the wiring or took sledgehammers to the walls.

Oh...so now you lazy renters are gonna bitch about the graffiti all over the walls of your potential new home huh?

A little spic & span and some elbow grease and it will buff right out.

If you happen to luck out and go home with a house like...

1560 E 108th St. 90059 MLS# P636059

or

11208 Mona Blvd. 90059 MLS# R803559

Just remember, it's a HOME damn-it, not an investment.

And for all you baby-makers out there, why worry about buying in one of those fancy-shmancy neighborhoods for the "better schools"? With the money you can save on a wonderful "in-city" foreclosure you will be able to send your young-uns off to Exeter or Andover.

In fact, the prices are SO low that you'll be able to HELOC the SUV of your dreams within months!

Free AK-47 and bullet proof stroller with every purchase!*

*Catastrophic health insurance not included.

[Michael Snyder]

ChrisFSm
You may not like gravity. You can lobby against it, hold a protest and even find a shyster to file a lawsuit; but at the end of the day your opinion really doesn't matter. You will still fall in the direction known as down.
Every time some starry eyed idealist like you comes along and thinks they can "regulate" a market/price two things are sure to be true. Whatever regulation is enacted will tilt the playing board to favor the regulator/lobby and the law of unintended consequences will be brought into play.
Just witness what's happened to the price of oil. Don't you get all warm & fuzzy realizing this run up was funded by the US Treasury when the made all of those 180 day loans to investment banks. But they "saved the market". Aw huh..
The first free market capitalist were the Chinese and they were good at it a thousand years before the Jews figured out what a sheckle was. You can bet the "market" was setting the price even then,

[Bob]

I am very happy that finally someone suit these companys who use the auction as a way to cheat.

I am a winning bidder in an auction for the house in Gardena village, May 10th,2008.

We signed contracts, but no signature from seller side in the contract, they told us at that time, the seller will sign it or reject it within 6 days. We paid 3% of the bid price for deposit,
($5000.0 in casher's check, remains in personal check).

You know what, more than 30 days passed, the sale agent still tell you the seller are still talking with the lender (maybe more than 1 lender), you need wait for more days.

The contract which we signed is prepared by the seller side, and no expiration date for our offer.

Most of these winning bidders (include myself)withdraw the offer now, fortunately, I got all my deposit back from the escrow company after many phone calls and arguments with them.

These auctions are just a joke, I will not spend my time and my money on it again.

I support this suit, hope they will get a fair judgement.

Bob

[Sean OToole]

This is a pretty astute crowd who likely already understands this, but I just wanted to remind everyone that these so called "foreclosure auctions" are actually not foreclosure auctions at all. They are bank marketing events designed to sell previously foreclosed homes, and have absolutely nothing to do with the actual foreclosure (or "trustee sale") auctions that happen on the court house steps.

I'd personally like to see these auction companies banned from advertising these as "foreclosure auctions", as it would certainly eliminate a lot of confusion.

Sean O'Toole
ForeclosureRadar.com
ForeclsoureTruth.com

[Laker]

hey housing bull,
I love the 1560 E 108th St. 90059 MLS# P636059. I'm calling tomorrow the agent and be there 7:00 AM to buy it. It is a great value and huge drop in price. This was last sold Aug 30, 2006 for $415,000.
So it is worth 3 times more than what they are asking...
I can't wait to move my family into this lovely charming home located on a tree lined street. It has large lot too...

...
..
,.
Now seriously, did the bank make a typo on the asking price? I assume they are asking $59,900 which is the value back from 1990....
I would not pay $900 for that super duper shack. WOW. Nice place....I hope shockg would buy this lovely house....

[Nick]

Sounds like a reasonable case: they have suffered real monetary damages from their fraud, and seek to recoup them. Based on the preliminary info, they should have a reasonable chance of winning a settlement, at which point maybe the auction company will still be around.

Nevertheless, I think this is a good lawsuit. Even if they never see money beyond perhaps their actual damages and maybe attorney fees, the publicity should help damage the fraud- er, auction company business, and hasten its demise. Given how shady, dishonest, underhanded, and despicable they are, I can't see that outcome as anything except a win for the eventual consumers.

[rhett]

So Countrywide is evil for loaning people money that the people don't pay back? So auctions are evil because not everyone wins? (Ever heard of EBay?--They have a reserve on many items).

I have been to several auctions and they all say the sale is subject to confirmation.....And over 70% of the homes actually do sell.....most are below reserve and get accepted anyway.

What can't people just accept the fact that there are 20,000 homes a month coming back to the banks and understand they have to be sold. Complain about auctions and Countrywide all you want, but try getting a response from a REO home that is listed by a broker...or a short sale. It takes weeks. They are swamped with inventory and the process takes time and needs safety nets. If you don't like auctions...here is a solution...don't go. I can promise you the buyers there might be put through a few hoops, but they get the best prices....that is a fact. Auction sales are 10% less than agent sales. So stay away and leave the bargins to the experts.

[LA]

Uncle Billie, you rock my world. Will you marry me?

If you say no, I'm gonna ask Cal.

Okay, so I have nothing of import to contribute to this thread. I shall go put 8 gallons of gas in my Prius whilst I regain my girlish composure.

[Dean Ross]

I think R.E auctions stink. I wasted a lot of time when I was the winning bidder on a house in Irvine. Same BS after all was said and done, the lender calls me and wants another $75,000. I told the lender to shove it where the sun does not shine.

[Wooster]

I, for one, am surprised that normally ethical mortgage/property brokers would engage in such behavior in the foreclosed and distressed property business.

[Uncle Billy Blah Blah Blah]

rhett: talk to bob and other "winners" at the auctions. Do 70% really sell? Reeeeeeeally?

[TrojanDLA]

rhett said: "I have been to several auctions and they all say the sale is subject to confirmation.....And over 70% of the homes actually do sell.....most are below reserve and get accepted anyway."

Nope, you understand the half of it. NOT 70% of the homes actually do sell, as a matter of fact, if you measure how many of these "sales" go through closing with an exchange of money/title, it's more like less than 20%. Where do you get that 70% number? MAYBE 70% get bids, but how many of those bids close? That's the important issue.

Also, and more importantly, you compare this to EBay - wrong. EBay is very transparent about the "reserve" and how bidding is affected by the reserve. Have you seen the advertising for these "auction" events? Not ONE mention of a reserve or minimum. As a matter of fact, there is mention of a "minimum bid" but that bid is not the reserve - confusing?

EBay, for all its faults, is at least upfront and clear about the process. These auction companies are not. Try reading any of the weekly ads for those auctions and see if you can find any mention of the bank reserving the right to reject any bid - it's not there.

[anonymous]

Wooster,

Oh, HAR HAR HAR!

"normally ethical mortgage/property brokers" except when confronted by greed, right?

[RZ]

What costs are involved for the "winners" of foreclosure auctions before they close escrow? Do the banks gain any money by scaring away these "winners" before escrow closes? I'm wondering if this is a dirty way to make money from costs associated with the auctions.

[dclogang]

Michael Synder,

No no no no...
By governing I meant like a housing agency. HUD perhaps?

You are lumping me in with Richardson? Richardson and I are so far opposite ends of the spectrum you wouldn't even believe it.
I'm waiting for house prices to come down. (I didn't buy multiples as investments like she did) I have an excellent credit score. (I can't imagine hers to be good right now). I'm responsible and apparently a little bit better at math than she is and am a little more in touch with the reality of the housing market than she is.

In another state there is a house near my dad's house that went into foreclosure and unless you want to live in that house you can't buy it. It's to prevent speculators and flippers.

If folks want to make money in real estate they should buy apartments/condos.

Yea, let the prices fall where they should be I agree but
at some point there has to be someone that says "wait a minute..something isn't right here.

I'm not suggesting the government price all housing. Just the ones that have gone into foreclosure if that means everyone's house value drops to where it should be I say yes..

"dclogang,
So, you've been doing real estate in Havana? Who would be on this "people's pricing committee"; you, Laura Richardson and what other experts??
Real estate prices are set by location, market conditions and the cost of money. Even with the bubbles it's a system that's worked well for over 200 years and I for one am inclined to allow nature to take its' course."