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.
I don't have any personal experience with house auctions. From the summary of the lawsuit, the anecdotes from other posters and the description by rhett, these auctions seem to involve a gross misrespresentation. The bidders think a house is being auctioned. What is actually being auctioned is the right to make an offer to buy the house, which offer the seller (lender or developer) is free to accept or reject. Since anyone can offer to buy property, the only advantage the "auction" confers is the liklihood that the seller will actually read your offer. The big disadvantage is that the offer must be submitted on the seller's form, which is very one-sided in favor of the seller. Potential home buyers outside the auction arena usually submit offers on a standard California Association of Realtors form, which provides certain protections for the buyer. The only good news for a winning bidder is that, because the auction is not really an auction, it should be totally free to rescind its offer in writing and get its deposit refunded any time before the owner accepts the submitted price, regardless of whether the owner counters its offer. Seems that is exactly what Dean Ross did.
Posted by: Dougmc | June 18, 2008 at 07:05 PM
Auctions and foreclosures are simply a huge waste of time and frustration. You will get screwed. You want a deal go make 10 low offers a week for houses in a nice location and nice condition. I gaurentee you will have a great house within a month at a better price then an auction or foreclosure. These shams are totally overrated.
Posted by: Steve | June 18, 2008 at 09:30 PM
So it appears countrywide had a reserve of 203,000/- but instate wasted the ladies time by making her belief she was buying a house on auction at 153k . What is so difficult about coming up with a reserve price before the auction date anyway?
These mortgage companies should be made to as transparent as e bay. It is necessary for that suit to be won, so the shameful behavior stops.
Posted by: Joseph Wanyama | July 20, 2008 at 07:17 PM
I agree with Steve, forget the auctions. Go out and put in some bids. If they really want to unload, they'll take your offer.
Posted by: owner occupy | October 16, 2008 at 04:05 PM