Tuesday, November 20, 2012

Let the Buyer BEWARE: How Internet-Based Real Estate Auctions May Leave You Wanting More... (in not such a good way)

Hello my friends... it's been a while since I popped in to tell you about life in the real estate trenches and provided you news you can use.  Well, I've got another doozy of a file and story to share, which can possibly save you some greenbacks when searching online for the impossible mecca of real estate finds: the online auction.  These days, with banks having more inventory than they can use or desire to have, they are finding new and creative ways to dispose of real estate.  This climate may be a buyer's dream - availing you of opportunities to buy prime and distressed properties at a premium - saving you time, money and expenses.

HOWEVER, there are many risks of purchasing property in online auctions, E-Bay Style, and I'm here today to share with you some risks that you MUST be aware of, if you are to engage in the game of online bidding.  A breakdown for you, my friends, of the top 5 Risks in Auction Real Estate:


  1. READ THE FINE PRINT.  You may think that the online buying format is very simple, quick and to the point. What you may not realize, is that the fine print takes away whatever the BOLD print gives you.  Case in point:  I have a client who found a distressed/foreclosure apartment building for $150,000 in Chicago.  Seemed like a great deal, until he got past the contract and into addendum's to the contract which took away everything that the contract had given.  He was prevented from inspecting, obtaining any information whatsoever, and was required to close all without the benefit of having information necessary to close.  This is a bad idea.  Be sure to read very carefully and understand what you can and cannot do in such a situation.
  2. DEMAND INSPECTION RIGHTS AT CONTRACTING AND BEFORE CLOSING.  Regardless of what any contract may provide, do not agree to buy property in any condition, from any source (online or otherwise, realtor or not) without having the right to inspect fully (with a licensed inspector) at least once.  Any selling party who prevents inspection, invites lawsuits.  DO NOT CLOSE WITHOUT AN INSPECTION.  PERIOD.  END OF STORY.
  3. DEMAND MARKETABLE AND MERCHANTABLE TITLE.  In a foreclosure situation, you may be getting whatever bad title the seller has to sell you.  That is unacceptable.  You should never purchase from a party you don't know and accept a Quit Claim Deed at closing.  As an incoming purchaser, especially in an online/bidding-auction type real estate transaction, you must be sure that the title you obtain in the purchase/sale, is good title, subject to the guaranties of the seller and their assurances of good title.  Marketable title means there are no encumbrances, liens, issues which could come up to impede your title or cloud it.  A title company must sign off on this and a Quit Claim Deed does not provide the warranty of title that is so important in real estate - EXPECT AND DEMAND IT.
  4. PROCURE TITLE INSURANCE YOURSELF IF SELLER WON'T PROVIDE IT.  You cannot be forced to close on any property without title insurance.  It matters whether or not a title company will insure a property, so it makes sense that you should test this by taking the transaction and closing it at a reputable title company which is licensed in your state.  If the seller refuses, you have a really good reason to cancel the transaction.  A buyer has the right to protect himself, and if you don't, you may be sorry.
  5. WALK AWAY IF YOU HAVE TO.  There is nothing wrong with canceling or terminating a deal because you feel unsure.  Usually the contract provides for such a right, but just because there is nothing spelled out in the contract does not mean you cannot cancel.  Unless the seller is prepared to take you to court to force you to buy the property, the most you usually can lose is your earnest money and even then, that is not necessarily up for grabs in every transaction.  It's recommended you seek the advice of a reputable and competent real estate lawyer who can review the situation and work with you to terminate officially, peacefully and for a full refund of your earnest money.  
It was strange for me to threaten to put my "dead body" over the closing table - but I had no other way to convince my client that $150,000 was not that great of a deal when he didn't get any guaranties that the seller even had the right to sell the property, that he didn't know who lived there and might never know, and that the seller wouldn't even let him inside to look around before buying.  My client finally agreed and we terminated the deal - even though the contract never said anything about the buyer canceling.  Because I was very strong in my language the seller knew that if they did not return the earnest money, their contract may be tested in court, so my client was able to cancel.  

Now, I can't promise a clean exit in every situation, but I can say that it was the best thing for us to cancel this deal - because it was simply too good to be true and we knew that moving forward was too much of a bad risk to take on.  Our bottom line:   Risk is good, but it must equal reward to be good enough.  

Your Use You Can Use?  Be Careful and be Selective!  Real Estate can be very tricky and the consequences of a bad deal can last for many years.  Be CareFul and proceed with caution, every deal, every time.  

Happy Bidding and Happy Holidays, from The Law Office of Alisa Levin - Your Chicago Law Source!

3 comments:

  1. Hello, I love reading through your blog, I wanted to leave a little comment to support you and wish you a good continuation. Wish you best of luck for all your best efforts.


    Chicago Properties

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  2. If you want to make real profit from you property then Real estate lawyer is very necessary for planning and implementation. I think one should hire a good real estate lawyer for guiding well about proper property investments and better future aspects for estate.
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    Estate Planning Illinois

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  3. Hi Marc... Yes, hiring a real estate lawyer is critical. That's just one of the reasons I write this blog... not only to bring attention to my practice, but to share my knowledge and experience. These trenches I talk about are real!! Thanks for sharing!

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