About a quarter of the winning bidders at a November auction of 300 Massachusetts home foreclosures have not yet been able to claim their properties, even as the auction company prepares for a new sale next Saturday.
Frustrated bidders say they have spent thousands of dollars on deposits, fees, and financing only to find themselves mired in delays and legal complications that raise questions about the integrity of the auction.
The rules were simple: The high bidder on each property paid a $5,000 deposit, signed a purchase agreement, and arranged a mortgage. The company, Real Estate Disposition Corp., told bidders they would close within 21 days of the auction. But some sales have been delayed for months because the auction company accepted properties from mortgage companies before those companies completed the process of foreclosing on the prior owners. In other cases, bidders say they have received no explanation for the long wait.
In one instance, three friends made the winning bid of $130,000 on a house in Lee. The mortgage company delayed the closing, then sent a letter in February offering to return the deposit. Before the friends responded, the company put the house back on the market for $179,000, then quickly agreed to sell it to someone else.
"It's just a disgrace the way the whole thing was handled," said Kevin McLean, a Dedham lawyer who represents the three friends.
Real Estate Disposition, based in Irvine, Calif., acknowledged that mistakes delayed some sales, but said it was working to correct the problems. Spokesman Michael Schack said that about 40 properties remained in limbo, while the rest either had closed already or were "on the cusp" of closing.
"We have taken a number of steps to make sure that what happened in Boston doesn't happen again," Schack said. He said the company would no longer auction properties before the foreclosure process was complete and that Real Estate Disposition had overhauled the way it supervises the closing process, including hiring a new executive to manage closings.
The firm holds auctions to sell foreclosed homes that mortgage companies can't sell on the open market, often because the properties are in poor condition. It has thrived as foreclosures have multiplied.
In November, Real Estate Disposition auctioned about 300 properties over two days at the Hynes Veterans Memorial Convention Center. It plans to auction roughly 170 more properties at the Hynes next Saturday.
John Mahoney and two friends were the high bidders on three properties, including the Lee house, at the November auction. The three men, all classical musicians, have bought about 100 buildings over the years, including several foreclosed properties. They rent some of the buildings and resell others.
Mahoney said he spent days visiting most of the properties auctioned in November. The men decided how much they were willing to spend and came away with three properties they considered good values: The house in Lee, a three-family in New Bedford, and a condominium in West Dennis.
They paid a $5,000 deposit on each and borrowed another $500,000 to pay the balance. They hired lawyers to conduct title searches and paid to winterize one of the buildings.
Then they waited to hear from the mortgage companies about closing dates. In late January, Mahoney received letters from a lawyer postponing two of the closing dates until the end of February. Then came the letters offering to return the deposits. "We were out thousands of dollars," Mahoney says. "We've been paying interest on our financing, and now they just wanted to pull the rug out."
The Lee and New Bedford homes both are owned by EMC Mortgage, a subsidiary of Bear Stearns Cos., the investment bank that nearly collapsed last week before agreeing to sell itself to JPMorgan Chase & Co.
Unprecedented numbers of foreclosures are straining the capacity of many mortgage companies, including EMC, and causing their finances to crumble. OH PLEASE!!!!! For companies in that situation, Real Estate Disposition offers a welcome service - taking control of the entire sales process.
The November auction was the company's first in Massachusetts. Some of the winning bidders did not qualify for mortgage loans or decided to back out. In other cases, the winning bid was less than a minimum price set by the seller. Of the original 300 properties, about 170 deals moved forward.
In addition to those properties that the lenders had not yet foreclosed on, WTF ???? in other instances Real Estate Disposition failed to retain the lawyers necessary to conduct closings.
It's not clear why EMC put the Lee property back on the market. It did not return calls for comment. But Mahoney, who earns his income as a real estate investor, saw that the property was listed as being under agreement to someone else. He threatened legal action, urging the lawyer representing the seller, EMC, to honor the original deal. On Thursday Mahoney got a new sales contract at the original price, $130,000.
He hopes that EMC also will honor the New Bedford deal.
He has yet to hear anything from the mortgage company that owns the condo on the Cape.
Binyamin Appelbaum can be reached at email@example.com.