Foreclosure auction firms accused of “bait and switch”

[flashl]

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, 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.

LA Times

[CrispyQ]

1. The endless dredges of homosapien swarm out of the woodwork. -nt

[On the Road]

2. With all the Complexity in Selling Real Estate,

this is an incredibly basic thing. There is nothing wrong with having a reserve price. There is definitely something wrong with waiting 30 days to notify the buyer. This seems designed to trap buyers who have made irrevocable commitments to move into paying a premium. It should be made illegal, just like last-minutes changes to "pre-approved" mortgages.

[SlipperySlope]

3. Screw reserve prices

Just set the minimum bid equal to whatever the reserve would have been. None of this "secret pricing" behind the scenes crap.

[On the Road]

4. That Would Indeed be Better

but the general principle of a minimum price is not what's really at issue here. It's the secrecy and delay designed to place bid winners in a bind and squeeze money out of them.

[SlipperySlope]

6. I have some second-hand knowledge here

I haven't personally gone to one of these auctions, but I've talked to some people who have been involved with them.

The auction is marketed as a quick and easy no-hassle process. You usually have to be pre-qualified by a lender of their choosing to participate, and you have to show up with cash or a cashier's check for $10,000 or more to take part in the bidding.

They tell you that most sales go from bid to closing in 3 days.

But after the auction is over, they find ways to stretch it out for months and try to nickle and dime the price upwards.

[fasttense]

5. If they advertised these auctions as merely price setting

get together, no one would attend. They advertise the auctions as if the highest bidder gets the property and people show up hoping to get a deal. With reserve pricing and hidden fees, they might as well not even conduct an auction. Just put an add in the paper stating your reserve price. Why bother with faking out people unless you are trying to cheat them.