Real Estate Auction Nightmare

For several years, I have volunteered on http://www.allexperts.com/ in the category of "Arbitration/Mediation"

The following is a question & answer over a deposit dispute with a real estate auction in Phoenix, Az.


Real Estate Auction Nightmare

Question:
I'm a retired Realtor from Washington, now living in gold Canyon, AZ. In October I attended my first real estate auction, an REDC auction in Phx, where I bid on and entered into a purchase and sales agreement. The remaining homes in two subdivisions were auctioned by REDC the developer. I actually did a pre-inspection of 57 but decided I was only interested in two actual model homes, upgraded and ready to go. These homes were showcase homes people toured prior to selecting the floor plan they wanted so the homes were very well done with high end extras. My intention was to live in one of these modest but stylish homes.

The actual models, those used to showcase the various floor plans, sold early in the auction. I sat back waiting for a convenient time to walk out since the two models I was interested in were now sold. As I was about to leave, the auctioneer said that a previously auctioned 4 bedroom, one of the model homes, showcase homes, had returned to the auction pool due to some problem with the first bidder's credit worthiness. Bidding began anew immediately. I honestly did not have the time to go back through the auction brochure but I did know that I would love either of the 4 bedroom models. I won the bid and escrow was opened with my cashier's check for $5250.

The following day, Monday, I drove to video the home. As I checked lot numbers and addresses I realized that the 4 bedrooms were on different lots with different addresses and that I had actually bid on the 3 bedroom model. The brochure had incorrectly disclosed that Lot 50 was a 4 bedroom and the auctioneer had also referred to the property as one of the 4 bedroom Fiesta model homes (again, there were only two.)

I immediately contacted REDC. I had back and forth conversations with several people in the days that followed. Initially they argued that I should have done "my due diligence" and that I had no grounds for backing out. As I moved up the chain of command, the V.P. of Sales at REDC, called and asked if I'd be willing to switch to a 4 bedroom model home, showcase home, in another location but that had not sold at the auction. I agreed to look at it and was shown the property the next day by a salesman for the developer. He said he had heard of my situation and that he thought I was being treated unfairly. He also said that the broker, his boss, "would not do the right thing by me unless made to do the right thing" (he has since resigned.) I went home and agreed to the trade. The V.P. of Sales was encouraged and he told me that he was advising the developer to make the trade. I was very relieved until he called two days later to inform me that the developer would not do the trade after all.

Currently my $5250 sits in escrow. The developer will not respond to any of my correspondence. A lawyer from pre-paid legal, wrote them on my behalf and that letter was also ignored. The contract stipulates binding arbitration as a remedy in case of a contractual dispute but I have no idea how that process happens. The pre-paid legal attorney suggested I sue rather than go the arbitration route. But I can't justify spending $5000 to retrieve my $5000 earnest money deposit.

It's inconceivable to me that I somehow should have known that Lot 50 was not a 3 bedroom and that the brochure was in error as was the auctioneer. After all, neither developer nor REDC caught the mistake prior to the auction. Had the home I bid on been the actual 4 bedroom model offered, I would have gladly closed on the house. Please give me your take on this situation. I'm at a loss as to how to proceed.

Answer:
04/11/2008Patricia- First of all, I'm sorry for your real estate auction nightmare.

As a "Neutral" Mediator, I do not takes sides or positions.

My practice is in California and the standard language would be in a dispute that the parties would "Mediate" and the second phase would be arbitration, if both parties had agreed in the contract.

You may want to take a close look at your contract and see if a "Mediation" clause is built into the contract.You may also want to contact the local Superior Court in Phoenix as your case may be heard in small claims. Often there is a limit as in California its $7,500. If this was the case in Arizona this could possibly cover the deposit of $5,250.

As you mentioned you have used pre-paid legal and have not had a response, and the cost of Arbitration and the risk of binding arbitration, must also be weighed.

Mediation can be cost effective for all parties, and you may want to explore this with the developer.

Often in larger cities there are community based mediation programs, there may be also mediation through the courts or perhaps mediation could occur with a private mediator.

A good source for a private mediator would be to go to http://www.mediate.com and look under Phoenix and real estate Mediation has a specialty.

More than likely your deposit funds will stay in escrow until the dispute is resolved.

Perhaps a face to face meeting with the developer can be of value, explore the "small Claims" path and attempt to mediate prior to arbitration.Litigation may not be in the best interest of all parties.

I wish you the best and please keep me posted. Happy Retirement

Respectfully





Jim W Hildreth-Mediator
www.RealEstateMediation.org