Can You Back Out of a Bid at a Foreclosure Auction?
What is that saying? “To err is human; to forgive, divine.”
Alexander Pope may have been referring to the heavenly authority to forgive mistakes, but the statement applies to non-godly entities: the clerk, the judge, the frustrating online bid portal.
If you have not yet made an online bid mistake and you participate in this business with unyielding determination, you will. I assure you that this will not be the end of the world even if it feels like it when you realize what has happened. In fact, once you’ve experienced a bidding mistake you will become more empowered with your investments going forward, so long as you are willing to learn the lesson.
In this article, I share with you some of the bidding mistakes and some of the buyer’s remorse experienced by my foreclosure auction clients. Learn from their lessons and empower yourself to be comfortable embracing the natural risks involved with foreclosure auctions.
The place to start is caveat emptor, the concept of “buyer beware.” Caveat emptor merely means that it is on the buyer to check the condition of what they are buying.
That’s right! Buyers are only held to be aware of what they could reasonably discover before a sale, to the degree they had an opportunity to inspect, and in transactions involving no fraud or concealment of the defects. Thus, caveat emptor does not mean you have no options. Think of it more as a place to begin your strategy when mistakes and remorse happen.
There are three common bidding mistakes I will discuss.
- You type in the wrong amount in your bid.
- Your bidder name is incomplete or has the wrong intended “winner.”
- You bid on the wrong property.
Wrong Bid Amounts
Ah, how we lawyers love to say “it depends,” but we are legal physicians. Like the status of your heart health depends on your diet, activity, and family history, the status of your legal rights depends on who, what, when, where, how, and why. What happens to you here, and what has happened to my clients, depends on the facts of the case.
On the one hand, when my client typed an additional zero that resulted in a million-dollar purchase price for what was clearly not a million-dollar home, we were able to undo the sale and get a full refund of what had been deposited.
On the other hand, when a client lost a bid to another because — although they had bid a higher amount than the winner — it was not in the $100 increments required, their winning bid was rejected outright for non-compliance.
Here’s an example: The auction’s highest bid is $51,000 and it’s the last minute of bidding. Our poor bidder enters a bid of $51,001, or $51,101. This bid is rejected, and by the time the page loads to let them know, the bidding is over.
Wrong Bidder Name
This is one bidding mistake I see with great frequency. Bidder A excitedly puts on their bid sheet the company name “Jesus Loves Real Estate.” Alas, this is not a legal entity that can receive title. Is it Jesus Loves Real Estate PA, Jesus Loves Real Estate Inc, Jesus Loves Real Estate LLC, or a separate legal entity or individual with Jesus Loves Real Estate as their DBA?
This mistake creates an immediate cloud on the winning bidder’s title. Can it be fixed? Yes. Sometimes it is handled in a relatively simple process in the same foreclosure case. At other times, it may require separate title litigation. This would be the case if, say, there was a North Carolina Jesus Loves Real Estate LLC and a Florida Jesus Loves Real Estate LLC.
Another version of this mistake happens when the bidder owns multiple entities. Perhaps they intended to bid on behalf of Company A and instead use the bid platform for Company B. In that case, practicality may require a transfer of title after the sale is confirmed with a certificate of title, rather than risking waiting months to get a hearing in the foreclosure case.
The risk comes when a bidder uses the wrong account and that account is underfunded. Why? Well, the bidding systems often take up to a week to confirm ACH transfers. Since payment of balance is often due by noon the day after the sale, the best recourse is to file an emergency motion requesting an extension to tender payment due to the technical error.
You may be wondering, is she serious? Do people really bid for the wrong property. Yes! Sometimes it’s the result of the bidder’s own lack of precaution, but at times it is the result of mistakes made in the foreclosure case that result in the wrong property getting auctioned.
If you bid on the wrong property and it is your mistake, the best thing to do is ask the court to not disbar you (when you’re prohibited from bidding for a certain period of time as a result of not tendering the balance of the sales proceeds) and explain your remorseful reasons. Sure, you may forfeit your deposit, but consider it your tuition for that lesson in diligence.
If, however, the wrong property is sold as a result of the clerk’s mistake or the entire case has a mistaken property, it is likely that you can get your bid deposit back with proper legal representation. Ask me about the case of the neighboring properties in Hillsborough County — it’s one for the books.
There are three kinds of buyer’s remorse I will discuss.
- You discover there is a sinkhole on the property.
- You discover that there is no structure on the property.
- You discover that there is one or more superior liens that are not wiped out in this auction.
Did you know the foreclosure lenders have no obligation to discuss the existence of any sinkholes on the property? Florida is prone to sinkholes due to the natural geology of the state.
While the average sinkhole in Florida is about 11 feet across, from time to time there are the behemoths like the Land O’ Lakes sinkhole that was almost 260 feet across. Sinkhole findings can create genuine remorse for bidders because sinkhole properties are often challenging to insure, foreclosed properties may not have had the remediation necessary to stabilize a sinkhole, and sinkhole properties make for a smaller pool of interested post-sale buyers.
The existence of a sinkhole report alone in the official records will not be sufficient cause to undo a sale. However, if the sinkhole happened around the time of the sale, there may be more of an opportunity for the court to cancel the hearing, in fairness to all parties.
I cannot stress enough how important it is for bidders to go do a physical check of the property they will be bidding on at least a few days before the sale. The fact that land is vacant is not sufficient to undo a sale. Even the fact that a condominium doesn’t exist has not kept courts from confirming a sale of virtually nothing.
Is this the end of the world for bidders? Hardly. Rather than face an appeal, most lenders and associations are willing to negotiate a buy-back in the event you discover you purchased the opportunity to rebuild.
The existence of superior recorded liens is paramount to foreclosure sales law. In other words, anything recorded as to property A will be imputed as known to the buyer of property A. In situations where you purchase at junior foreclosures (2nd or 3rd mortgages, HOA or condo association judgments), commit these two facts to memory:
- You cannot force a superior lien to satisfy itself from a junior lien’s surplus. Only the prior owner and other junior liens may touch those surplus funds
- Superior liens will require payment, a release, or to be quieted out (if the superior lienholder is completely unresponsive) for you to have marketable title.
Marketable title is title that a title insurance company would be willing to back by a title insurance policy, without exceptions, when you sell the property. Sometimes, however, a seemingly superior lien was actually refinanced by the mortgage which foreclosed on its interest. Having an experienced real estate title attorney review the chain may bring unexpected news in your bid journey and turn remorse into rejoicing.
The most unfortunate cases of buyer’s remorse at the auction happens when an inexperienced bidder does not do the title research before the auction and bids blindly without realizing they are buying a junior lien. Worse yet, many times the superior lien is a few weeks away from their own auction date.
Unfortunately, these inexperienced bidders who think they bought a great new property for $10,000 make the mistake of paying the balance of their bid. They then find out days or even weeks later there are other liens foreclosing. Always do title research before bidding!
Learn from Your Mistakes & Keep Moving Forward
Whether you’ve made a mistake at an auction or you experience the feelings of remorse after becoming a winning bidder, remember that mistakes make us human.
One of the most successful entrepreneurs of our lifetime, Elon Musk, says it best: “Optimism, pessimism, f*** that; we’re going to make it happen. As God is my bloody witness, I’m hell-bent on making it work.” There is always a solution.