#Realty Auction Bidders Beware!

Posted By Cliff Tuttle | February 15, 2016

No. 1,246

Summary: If you are considering bidding on  real estate in a private auction, start by asking for the rules in writing and a copy of the agreement of sale that will be signed by the successful bidder.

Image: reitips.com

A sheriff sale is a forced sale for the purpose of liquidating a judgment held by a creditor of the owner.  The creditor generally starts the bidding with either the amount of the costs of the sale or the costs and taxes — the amount which must be paid first to taxing bodies and municipal providers of water, sewer. The creditor generally can bid up to the amount of the debt without paying anything additional, except costs and taxes. Tax sales have a similar procedure, but with a few more complications.  But it is also a forced sale, conducted by a government official.  The rules of sheriff sales, tax sales (and similar government and court-ordered sales) are well-established.

Private real estate auctions are voluntary sales conducted, not for a creditor, but for the owner. The owner may be a bank that previously foreclosed, but cannot find a buyer.  The property may have been listed by a real estate broker for some time and  failed to attract buyers.

Private real estate auctions are not new, but they seem to be increasing in frequency. Traditionally, they are conducted live by an auctioneer who takes bids from the audience in the usual way.  However, today such auctions are increasingly conducted by on line auction houses with procedures similar to eBay. The bids may be accepted over a period of days.  There are a number of on-line real estate auctioneers who can be easily found on Google.

If you are considering this investment opportunity, you should be aware that only a licensed Pennsylvania real estate broker is permitted to handle the sale of real property located in Pennsylvania.  The purpose of licensing is to protect the consumer.  The broker is expected to comply with Pennsylvania law. Every state has unique and frequently complex laws and regulations.  National auction houses that do not have a Pennsylvania license probably are unaware of their responsibilities under our laws. Moreover, because a Pennsylvania broker is regulated by the Pennsylvania Real Estate Commission, he or she is subject to discipline for legal and ethical violations.

Although the property may be advertised “as is”, the owner may have a duty under Pennsylvania law to make comprehensive disclosures. A Pennsylvania broker will be aware of the seller’s obligations in a residential real estate transaction.

Equally important, you should ask to see a proposed agreement of sale before placing a bid. This is extremely important.   Without an agreement setting forth the terms and conditions of the sale, it will be extremely difficult, maybe impossible, to get your money back.  Or worse, the agreement could state that the deposit is non-refundable and that failure by the buyer to close for any reason is a breach of contract.  It could permit the seller to sue for specific performance (requiring you to complete the transaction) and enable the seller to collect damages for various reasons, like delay.

Although you may ultimately prevail in court, that ordeal will probably be an expensive experience.

The agreement of sale should also provide for payment of all existing liens from the seller’s proceeds and pro-ration of current taxes and other obligations of the property. And it should permit the buyer to walk away, with the hand money, if the seller cannot give good title, free and clear of liens and encumbrances, as would be insured by a title insurance company without non-standard title exceptions.

There are a number of title issues  that are important when a property has been through mortgage foreclosure.  Junior lien holders are entitled to formal notice of the sheriff’s sale and the documentation filed by the plaintiff prior to the sale must conform to specific requirements.  Failure to document proper notice could mean that the junior lien is not discharged.  This would in turn require that the sheriff sale be conducted again or that the lucky junior lien holder be paid something to release the lien.

Another problem, easily overlooked, is that the property may still be occupied by the former owner or a tenant.  Such a dilemma is not unusual.  If the occupant does not leave voluntarily, evicting the former property owner or tenant may require additional legal action. Such title problems are usually expensive and time consuming. When they occur, the buyer should have the opportunity to terminate the deal and walk way, together with hand money.

CLT

Welcome

CLIFF TUTTLE has been a Pennsylvania lawyer for over 45 years and (inter alia) is a real estate litigator and legal writer. The posts in this blog are intended to provide general information about legal topics of interest to lawyers and consumers with a Pittsburgh and Western Pennsylvania focus. However, this information does not constitute legal advice and there is no lawyer-client relationship created when you read this blog. You are encouraged to leave comments but be aware that posted comments can be read by others. If you wish to contact me in privacy, please use the Contact Form located immediately below this message. I will reply promptly and in strict confidence.

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