Advice Please Lawsuit Threatened for Not completing FCL auction

21 Replies

Hi BP team. Long time reader, 1st time lawsuit-facer. In a nutshell, I have an LLC and have completed several sucessful foreclosure purchases and resales in Franklin County OH. The last one entered a purgatory of legal delays before bank issued letter to proceed. By time they were ready to move forward the deal was no longer attractive and do not want to purchase. I'm okay with losing my 10k deposit and walking away. Now being threatened with lawsuit by bank to compel me to purchase home. The threat is they sell and come after me for difference in my purchase price at auction and their sale price. Anyone face this? Am I protected from personal liability by my LLC?

TIA!

The terms of the sale that you agreed to by placing a bid will dictate whether they can forfeit your deposit and also pursue you for the difference (if any). Sometimes they have to choose one or the other, but I have seen terms that permit both of those remedies and more. Read the provisions regarding buyer default carefully.

I guess you didn't raise the issue of delays and attempt to wiggle out of the deal.

Whether your LLC would shield you from personal liability depends on a number of factors... it would be a very fact-specific inquiry. The answer would be YES to start but there are ways for creditors to get around that presumption. There is a wealth of information on "piercing the corporate veil" which you can research in the context of your home state.

Really appreciate the insight Tom! I had previously had 2 properties that I put a deposit at the auction & did not purchase. I just advised my title agent that I was not proceeding and never heard anything further from foreclosing lenders. Most of the 'piercing the shield' info I've found seems to be specific to cases where one has signed a formal contract. In this case I have my attorney researching whether the bid form at open outcry would constitute this. 

Thanks again

If you signed the terms as an individual, your LLC isn't involved. If you signed individually but the deposit was from the entity (or vice versa) they may pursue both if it makes sense.

Around here yes signing the bid terms would create a contract. Probably says so in the first paragragh.  

Good luck.

Thank you again for your input!

ARe these sherrif sales were you put up the deposit and bid  and are waiting for the judge to give confirmation.?

my understanding that if you bail on those you have a few things that can happen.

1. of course you lose your money

2. I guess they can threaten to sue for performance  ( although if these are low value assets I don't see the cost of litigation being at all worth it)

3. the Sherrif puts you on the no bid list.. that would be would I would be most worried about..

but not at all that versed there other than having bought a few but we never backed  out.

Appreciate it Jay! You are correct with most of your assumptions. It was just a boilerplate bid form. There is nothing stating it constitutes a contract on the form or on Foreclosure Office  (Sherriff) website stating such. It's a higher end property so I understand why a bank would be more likely to pursue this one versus the 2 that I did not purchase before. At this point I would be fine with being added to no-bid list and have already wrote off my inutal deposit. I would even consider settling with the bank but not okay with an open ended 'come after you for the difference' situation. In theory with this property that ## could be 6 figure. 

Really appreciate the community help!

If the LLC was the buyer, it may matter whether your LLC is a single member or multi-member entity. Some states have ruled, in courts, that a single member LLC may be a disregarded entity in certain legal proceedings.

John Thedford, Real Estate Agent in FL (#BK3098153)
239-200-5600

thanks John! It's a 3 member LLC so truly filed as a separate entity.

Hello! I'm in Columbus too. I'm just curious about why the property was no longer attractive after a delay. Right now our real estate market seems (at my end anyway) to be rather hot, so was it something unrelated to a change in the ARV of the property?

Also, was this actually a sheriff sale at the courthouse downtown where you fill out that purchaser form and give it to the lady on the stage with the laptop? OR is this one of those websites like ohiosheriffsales dot com that seems to be a proxy for a courthouse sheriff sale?  Or something like auction.com/hubzu etc?

Hi Nicky. Always good to chat with a fellow Columbusonian! Was courthouse/ hand form on laptop open bid purchase. The reasons for not purchasing are a little more complicated than just the straight #s. You are right, market is solid and would probably turn it for profit. A few extenuating circumstances have me preferring to walk and lose deposit at this point in time.

@Bryan S.

Just out of curiosity, even if this deal lost it's appeal to you for "complicated reasons", do you think it may appeal to other local investors?  If the numbers work perhaps you could shop it around and find someone who would take it off your hands, for lack of a better term.  I've never done this type of deal, but I'm wondering if some type of agreement could be made that would keep you in the good graces of the court, save your deposit, and satisfy the bank(seller).  And if another investor makes it work, everyone wins.

Hi Matt. Thank you for your response! That is a direction I will look into as well. 

@Bryan S. Have you talked to an attorney? What does OH statutes stipulate about not going through a foreclosure sale at the court house steps? In NC,  you will loose your bid money and more if the resale of the property is less than the bid you are walking away.

https://www.ncleg.net/EnactedLegislation/Statutes/...

45-21.30. Failure of bidder to make cash deposit or to comply with bid; resale.

"A defaulting bidder at any sale or resale or any defaulting upset bidder is liable on his bid, and in case a resale is had because of such default, he shall remain liable to the extent that the final sale price is less than his bid plus all the costs of the resale. Any deposit or compliance bond made by the defaulting bidder shall secure payment of the amount, if any, for which the defaulting bidder remains liable under this section"

Step 1: Talk to a real estate attorney who is experienced with Franklin County real estate law. Please let me know if you need a referral.

Step 2: There is no step 2. Please ignore all other advice in this thread, as it is speculation.

You could also get in touch with 2nd high bidder, if there was one, to see if they are still interested at, or close to your bid.

Thank you Peter. My purpose for reaching out to the community was to find out if anyone had been through a similar experience, but you are correct and we are reviewing our options with legal counsel. I appreciate everyone who responded. 

Originally posted by @Bryan S. :

Thank you Peter. My purpose for reaching out to the community was to find out if anyone had been through a similar experience, but you are correct and we are reviewing our options with legal counsel. I appreciate everyone who responded. 

 Definitely, need that advice from a competent local RE attorney.  But based on what you said I personally wouldn't be too concerned.  First, as always, threats are cheap, 'suits are not.  Second, if the market is strong like you indicated and you're walking for "complicated" (I read that as "personal" reasons), then their damages won't be very high.  Third, your attorney can look over your contract to advise you not only on your potential liability but your potential remedies.  I'd write back to the bank, "Thank you for your letter.  Please be advised of my intention to sue or counter-sue for breach of contract as your extreme delays amount to a failure to fulfill your duty to perform in good faith.  Your failure to perform has cost me X hundreds of thousands of dollars in lost profits, but I'm willing to settle this matter for a mere 100k and a return of my deposit."

(This is not legal advice, but when lawyers misbehave my natural inclination is to misbehave reciprocally).

@John Gillick They will resell the property first. If it sells for more, that answers the deficiency question. If it sells for less, well, that plus the terms of sale pretty much prove the case.

They would certainly have a good long laugh about your demand letter.

Originally posted by @Tom Gimer :

@John Gillick They will resell the property first. If it sells for more, that answers the deficiency question. If it sells for less, well, that plus the terms of sale pretty much prove the case.

They would certainly have a good long laugh about your demand letter.

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