Made BIG mistake with auction purchase - beware of scams

31 Replies

Fellow investors,

I expect this topic has been discussed ad nauseam on here but I thought I would share my tale of woe anyway to help others avoid making the same mistakes I did.  In August of last year I came across an advertisement for an online auction which described the property as a "fully leased and updated duplex" in Baltimore.  The photos seemed to indicate a property in very good condition with no major defects, both units were tenant-occupied with 2-year leases in place, and the gross scheduled rents were very attractive for the neighborhood.  Of course the challenge in these situations is gaining access to inspect the inside.  With both units being occupied and with only a few days remaining before the auction closed, I took a gamble and placed a bid.  I was the high bidder.

About 6 weeks later after I had closed on the property, I was notified by Housing Authority of Baltimore City that rent payments for the upstairs unit were abated due to violations and repeated failed inspections.  I got a contractor in there immediately to assess the situation.  Come to find out the condition of the upstairs unit was almost uninhabitable due to water infiltration into the living room ceiling and significant mold growth throughout the ceiling.  It was the opinion of my contractor that the problem had been ongoing for some time and the previous owners either knew or should have known and did nothing.  Long story short it ended up costing me $20K to put in a new roof, gut and rebuild the living room, and make other necessary repairs including replacing both electrical panels which were not up to code.   More recently I just spent another $15K renovating the downstairs unit after that tenant moved out.

To add insult to injury I paid above market value for the property when you include all the closing costs, and now I have $35K more in it, not to mention 2 months of lost rent due to the abatement.  Needless to say these guys pulled off the scam of the century.  They put lipstick on a pig (spent a few grand if that on cheap flooring and a coat of paint), placed an above-market tenant in each unit, and then turned around and sold it via online auction where they can hide behind a contract that gives the purchaser virtually no protection and no recourse.  These guys walked away with a huge chunk of change in their pocket with no liability whatsoever.     

Folks this is probably common sense to most of you but my advice would be to NEVER purchase any property that you cannot fully inspect before hand.  I would also advise against purchasing via online auction unless you really know what you are doing.  It is just too easy for a seller to pass on potentially dangerous defects to an unsuspecting buyer and walk away scot-free.  


@Phillip S.

Thanks for sharing your story, like the old adage goes:

"If it's too good to be true it probably is"

Hopefully your story will help someone from doing the same thing.

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Its Baltimore City, there's a reason why the return are so high.  Using my self proclaimed rule, 80% of investors get ripped off in Baltimore, the other 20% have been ripped off already, and wised up.  Call it a blessing in disguise.  That will never happen to you again. Baltimore City is not for amateurs.

thanks for the courage to share your store.  I am sorry to hear that you got scammed.  It is important to share these stories because we all can learn from them.  What are your plans now? 

@Phillip S. sorry about your luck! I am wrapping up a project that had too many unexpected variables to count too and it’s been frustrating watching the money drain from my bank account. On the other hand, sounds like you made major upgrades at a really reasonable price. New roof and interior means probably deferred capex...for my project, I’ve joked with friends that I hate it now but I’m going to love it in 5 years. Hopefully that’s your case too. Good luck!

@Damaso Bautista Thanks for the reply.  Yes that old adage definitely applies here, except it actually wasn't "too good."  I ended up paying full market value based on information in the advertisement that turned out to be a lie.  It seems the auctioneer should also bear some responsibility here, but the contract absolves them too.

@Ian Barnes Yes, this is my first property in Baltimore City so in that sense I am an amateur.  What surprises me is how easy it is for scammers to do it legally and get away with it.  In retrospect what I should have done was withhold payment of the auction deposit until I was able to inspect the inside.  One piece of the story that I left out was the fact that the seller told me after the auction that the upstairs unit had passed a section 8 inspection, which gave me no reason to suspect anything was wrong.  He probably told me that so I wouldn't go in and inspect, knowing full well what the situation was.  I have obtained copies of failed inspection reports dating back months prior to the auction, proving the sellers knew or should have known about the problem. 

@Tony Mai Thank you for the reply.  I have no choice but to stick it out and try to recoup some of my losses.  If I sold it today I would be in the red by at least $40K after selling costs.  If I can keep both units rented I should be able to recoup most of that within 5 years.  

@Aaron Hollingshead Thanks, actually I wouldn't call my upgrades "major".  I did upgrade the flooring to something a lot more durable than what the previous owners put in, a lot of drywall replacement and patch work, paint, molding, added a closet to the downstairs bedroom, etc.  Also repainted the kitchen cabinets downstairs and put in a new laminate counter top.  I didn't want to go too overboard as it just didn't make sense for the neighborhood. 

Welcome to Bmore , where houses change hands like baseball cards.

Section 10-702 of the Real Property Article of the Annotated Code of Maryland requires that  a seller (with some exceptions) provide a disclosure of all latent defects in the home. I'm not a lawyer but I suggest you contact one to see if the seller violated the law and you have any remedies.  If there were licensed real estate agents involved you should also file a complaint with the Maryland Real Estate Commission and seek compensation from the Guaranty Fund.

@Joe Norman , hi Joe, hope all is well, gotta come back to lunch at Spirits West one day. with auctions, its an As-Is product, I've read some of the paperwork, it clearly states to do your own due dilligence and is being bought as-is, there are no disclosures I know of. These days, I'm amazed at what people are buying and paying at auctions.  There is no way to be up to code, and make money when you factor in taxes, water, violations/citations and maintenance.  People still bid up the price, I don't get it.

@Ian Barnes You are correct - these auction sales are "as-is" and the seller is not required to disclose a darn thing.  However does that give them a license to flat out conceal and defraud?  The advertisement was misleading at best, and clearly meant to entice people into bidding on the property.

Originally posted by @Ian Barnes :

@Joe Norman, hi Joe, hope all is well, gotta come back to lunch at Spirits West one day. with auctions, its an As-Is product, I've read some of the paperwork, it clearly states to do your own due dilligence and is being bought as-is, there are no disclosures I know of. 

I agree that auctions are almost always are as-is sales, but that doesn't mean they are excused from complying with the requirement to disclose latent defects.  Just because most action sellers don't bother to complete the proper disclosure documentation (and most buyers don't ask for it) doesn't mean that they aren't required to.

Note that plenty of sales (regardless of auction status or whether its an as-is sale) are exempt, but because they fall under foreclosure or tax sale exemptions, not by virtue of the fact that it is an auction/as-is sale.  I'm certainly not a lawyer, so I encourage anyone to read and interpret Maryland Real Property Section 10-702 for themselves.  Would also love to hear from one of BP's Maryland Title Lawyers to get their thoughts on this.

I was at Spirits on Friday for the first time in a long time - hope to see you there soon.

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Auction .com specifically will tell you   that you cannot go on a property if someone is occupying it.. 

you have to treat auctions just like when i buy courthouse steps.. I not only go there but I will break in if i have to.. :)  just kidding but not really.  LOL..

Was the auction company alex cooper, Ashland or ajBillings? 

They are the 3 main outlets for investors dumping problem properties in Baltimore.

Funny how they all start with an "A" guess that is from the old yellow pages days of wanting to be listed 1st ..

@Phillip S.

No disrespect meant but why would you ever pay full market value for a place you have never seen via an auction website...? Those two factors alone should usually mean you need to acquire the property at a pretty deep discount to ensure you don’t lose your shirt. Again, genuinely curious...

@Tanner Marsey Because I was naive, and placed too much trust in the description that was given for the property.   Also I never thought it would get bid up like it did.  Clearly somebody else besides me wanted it, whether that was an actual third party buyer or the auctioneer placing bids up to the reserve price, I'll never know.  

Dont feel bad I am a pm in Bmore and have seen this happen to investors on larger commercial buildings.  Good job fixing the situation and slumming it like a cheapskate to save a little bit. 

I advise everyone to be willing to spend heavy on the home inspection.  Some things are worth the price.  I saw another time when a home inspector missed a rusted disfunctional flue line which fell off in the crawl space and I caught by the grace of god just before the tenant moved in.  The furnace was spewing raw monoxide right into the house.  I'm confident someone would have died if that flue line was not replaced.  Probably the tenants 1 year old son.  But hey the home inspection was cheap.  So was the contractor who worked on the house who didnt install smoke/ monoxide detectors.  

I recommend not only home inspecting when buying a property but also at the end of large renovations.  Before you pay the contractor his final payment.

You sound like you will be fine moving forward.  Baltimore can be very profitable.

@Phillip S. What a story and what a lesson. Thank you for sharing. Wishing you zero vacancy over the next 5 years as you work towards making a positive return on your investment.  

See you on the forums,


Originally posted by @Phillip S. :

@Tanner Marsey Because I was naive, and placed too much trust in the description that was given for the property.   Also I never thought it would get bid up like it did.  Clearly somebody else besides me wanted it, whether that was an actual third party buyer or the auctioneer placing bids up to the reserve price, I'll never know.  

 Fair enough. A pricey mistake that you’ll hopefully never make again. Look at the bright side.... when all said and done it’s still going to make you money one day. Good luck!

Phillip - I am a local auctioneer - there may b e something you can do about this bad deal. Give me all details and information about this auction company.


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