Can court disapprove an auction sale?

Question

I bought a property located in PG county of Maryland at auction.com. The contract says the Seller (in this case is the bank) at closing is responsible for delivering to the Closing Agent "The transfer deed warranting against title defects arising by, through or under Seller", and the contract does sound like this is an REO. However, when I looked up Maryland State property database, the property is still under current owner's name, and the foreclosure case in court is still open/active. Is it typical? We are supposed to close in 30 days of the sale, but I received an email from Title Company that due to the fact that this is a new foreclosure, it might take longer than 30 days. Is there a possibility that the court might disapprove the foreclosure case and the sale will not go through?

Thank you all in advance!

Sam Lin · Answer

@Nick L. Good to know! The only one auction.com-type property I was involved in made a mistake in their contract, so once they mentioned it'll be another 4-6 months to close, my client was able to get out and get her deposit back. Sounds like she got lucky.

Nick L. · Answer

@Sam LinWith auction.com-type sites, you don't get a chance to construct the contract. The banks give you whatever contract they want to, and you either sign it or you don't. The contracts are so heavily tilted in favor of the sellers that you are essentially hoping they choose to fulfil their end and have no comeback if they don't.

Wayne Brooks · Answer

Yes, I started noticing a year or so ago that auction.com will auction "REO's" before the actual foreclosure case is finished.  If you read the fine print in the auction details, it will tell you the auction is contingent upon the bank receiving the property at the foreclosure auction first.  A little bit of the cart in front of the horse.

Hannah Nguyen · Answer

Thanks again, for your generous sharing of experience. All the advice given merits taking into consideration for future deals.

I called the title company today, and they said the Seller (which is the bank) has paid all the condo fees to date. That is the good news. Since the condo fee covers all utilities, there should not be any surprising condo fee liens on the property, correct?

The bad news is, current ETA is July 29, according to the Foreclosure attorney that they are working with. Hopefully there will be no extension from there. Hopefully it won't take too long to the point I have to give up on it like Ray Slack did.

Ray Slack · Answer

and BTW.. Most foreclosure cases in PG are taking OVER 1 year after the sale date to be ratified by the court..   I have an auction.com property that they told me 30 day closing and every 30 days kept saying it would be another 30 days.. After 11 months I gave up on it.

Ray Slack · Answer

Let me start by saying.. I am in PG county and I bought 10 foreclosures in PG last year.. I have also bought properties from auction.com and other similar sites..  To answer your questions.

1. Yes a court can void a sale.  Although it's unlikely. I had it happen to 1 out of the 10 I bought last year.  it's usually only due to a mistake in the foreclosure process or a bankruptcy.

The bigger issue that you have is that you mentioned that this is a condo.. You need to read your contract thoroughly.  Most auction.com contracts require you to pay any liens or back fees. including water bills/leins and any back condo liens.  I got stuck with 2 huge bills at closing buying from these auction sites.. one was a 13,000 front footage accessment that had not been paid in 6 years and the other was a 2 years worth of back condo fees that had not been paid by the prior owner.   In any normal transaction these leins are paid by the seller but the online auction site's contract is so slanted to the seller and you can't change anything on it.  Most of the contracts call you to pay for everything..  Including the seller's closing costs.   One deal I had with and auction site the seller's title company send me a bill for the seller's closing fee of $1,600 in addition to my closing fees and government recording taxes/costs.  This seller closing fee is usually about $250 in my area.. I screamed and yelling and the title company said we have a contracted rate with the seller and that is our contracted rate and in your contract you agreed to pay their costs.   CRAZY.. In short deals on these auction sites seem like a good deal until you factor in all the addition costs and risk you face.   ONE MORE THING.. If you are getting a QCD or any deed for that matter and you are using their title  company and they find a lien or problem in the title they will just exclude it from your title insurance policy.  Meaning that one lost heir that they couldn't find to sign off comes back in 5 years and wants the house your insurance doesn't cover it because that was excluded under the coverage.

Ray

Matthew Kreitzer · Answer

Is it typically within a Court's power to void a sale that happened prior to the resolution of the underlying action? Why yes, it is. Are there any exceptions in your particular state that may change that general rule? Only a licensed attorney in your state could answer that. If you have concerns, or face economic hardships should the Judge invalidate your sale, seek out an attorney to review all documentation.

Russell Brazil · Answer

In this instance you want to make sure you are using one of the standard realtor contracts as they will have a provision that the property's title must be delivered clear. You also want to make sure that you are using a title company that will actually do their job in clearing the title. The lien from the bank will either be paid for from the proceeds of the sale, or wiped out depending on the specifics.

Russell Brazil · Answer

@Hannah Nguyen A common occurrence in our area is that an REO will be listed for sale, or auctioned after the foreclosure has been completed, but before the deed is ever recorded.  When you go to closing, the foreclosing bank will send their deed to the title company to have the deed then double recorded, passing from previous owner, to bank, then to you. Ive had this very thing happen to me probably twice in the last 6 months.

I would however check the Maryland judiciary records to see that the foreclosure was approved and recorded at the court level.

Chris Martin · Answer

As I pointed out above, in at least one state (NC) Auction.com sells both REOs (bank owned) and auctions trustee sales per the power of sale clause in the mortgage/deed-of-trust. I don't know if they handle judicial foreclosures or not since I am in a trustee state.

I have 'closed' 1 deal via trustee sale through Auction.com and 1 deal via REO sale through Auction.com. Two different animals. You really need to know which sale it is and know your state foreclosure laws if this is a trustee sale. I put 'closed' in quotes because the trustee sale (like a judical sale) goes through a different process in NC (like most all states) than an REO sale held at an attorney's office or title company. And, specifically, under item 4 in Terms of Sale, "All sales are subject to superior liens, unpaid taxes, any unpaid land transfer taxes, special assessments..." so make sure you know the lien position, tax status, etc. When in doubt, get help from qualified sources.

(Post for entertainment purposes, not to be construed as legal advice.)

Can court disapprove an auction sale?

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